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MEDICAID PROGRAM INVESTIGATION
(Part 2)

HEARINGS

BEFORE THE

SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON
ENEKGY AND COMMERCE
HOUSE OF REPEESENTATIVES

_ . ONE HUNDRED SECOND CONGRESS

SECOND SESSION

FEBRUARY 28 AND MARCH 26, 1992

Serial No. 102-137

Printed for the use of the Committee on Energy and Commerce

V 1

MEDICAID PROGRAM INVESTIGATION
(Part 2)

HEARINGS

BEFORE THE

SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON
ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES

ONE HUNDRED SECOND CONGRESS

SECOND SESSION

FEBRUARY 28 AND MARCH 26, 1992

Serial No. 102-137

Printed for the use of the Committee on Energy and Commerce

U.S. GOVERNMENT PRINTING OFFICE
58-688i=f WASHINGTON : 1992

For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-039189-X

COMMITTEE ON ENERGY AND COMMERCE

JOHN D. DINGELL,
JAMES H. SCHEUER, New York
HENRY A. WAXMAN, California
PHILIP R. SHARP, Indiana
EDWARD J. MARKEY, Massachusetts
AL SWIFT, Washington
CARDISS COLLINS, Illinois
MIKE SYNAR, Oklahoma
W.J. "BILLY" TAUZIN, Louisiana
RON WYDEN, Oregon
RALPH M. HALL, Texas
DENNIS E. ECKART, Ohio
BILL RICHARDSON, New Mexico
JIM SLATTERY, Kansas
GERRY SIKORSKI, Minnesota
JOHN BRYANT, Texas
RICK BOUCHER, Virginia
JIM COOPER, Tennessee
TERRY L. BRUCE, Illmois
J. ROY ROWLAND, Georgia
THOMAS J. MANTON, New York
EDOLPHUS TOWNS, New York
C. THOMAS McMILLEN, Maryland
GERRY E. STUDDS, Massachusetts
PETER H. KOSTMAYER, Pennsylvania
RICHARD H. LEHMAN, California
CLAUDE HARRIS, Alabama

Michigan, Chairman
NORMAN F. LENT, New York
CARLOS J. MOORHEAD, California
MATTHEW J. RINALDO, New Jersey
WILLIAM E. DANNEMEYER, California
DON RITTER, Pennsylvania
THOMAS J. BLILEY, Jr., Virginia
JACK FIELDS, Texas
MICHAEL G. OXLEY, Ohio
MICHAEL BILIRAKIS, Florida
DAN SCHAEFER, Colorado
JOE BARTON, Texas
SONNY CALLAHAN, Alabama
ALEX McMillan, North Carolina
J. DENNIS HASTERT, Illinois
CLYDE C. HOLLOWAY, Louisiana
FRED UPTON, Michigan

John S. Orlando, Chief of Staff
Alan J. Roth, Chief Counsel
Margaret A. Durbin, Minority Chief Counsel/Staff Director

Subcommittee on Oversight and Investigations

JOHN D. DINGELL, Michigan, Chairman
J. ROY ROWLAND, Georgia THOMAS J. BLILEY, Jr., Virginia

RON WYDEN, Oregon NORMAN F. LENT, New York

DENNIS E. ECKART, Ohio DAN SCHAEFER, Colorado

JIM SLATTERY, Kansas FRED UPTON, Michigan

GERRY SIKORSKI, Minnesota
JOHN BRYANT, Texas

Reid P.F. Stuntz, Staff Director/Chief Counsel
Stephen F. Sims, Deputy Staff Director

D.Ann Murphy, Special Assistant
Clifford R. Traisman, Special Assistant

Gretchen Tickle, Research Assistant
Thomas Montgomery, Minority Counsel

(II)

CONTENTS

Page

Hearings held on:

February 28, 1992 1

March 26, 1992 323

Testimony of:

Adamany, David, president, Wayne State University 230

Adelman, Susan Hershberg, on behalf of Michigan State Medical Society.. 280
Bilirakis, Hon. Michael, a Representative in Congress from the State of

Florida 324

Carpenter, Mary Brecht, deputy director, National Commission to Pre-
vent Infant Mortality 397

Chiles, Hon. Lawton, Governor, State of Florida 327

Conyers, Hon. John, Jr., a Representative in Congress from the State of

Michigan 6

Ellstein, Charles L., group vice president, Health Delivery and Finance,

Michigan Hospital Association 280

Farver, Patrick D., vice president, Blissfield Manufacturing Co 60

Foster, James R., administrator. Three Rivers Area Hospital, St. Joseph

County, Michigan 251

Garrison, Frank, president, Michigan AFL-CIO 10

Grad, Rae K., executive director, National Commission to Prevent Infant

Mortality 397

Gregory, Warren, staff professor, House Fiscal Agency, MI 77

Hiltz, Richard S., president, Mercy Memorial Hospital, Monroe, ML, on

behalf of Michigan Hospital Association 295

Hirschland, David, assistant director. Social Security Department, United

Auto Workers International Union 12

Hollister, Hon. David, a State Representative from Michigan 77

Levin, Hon. Sander M., a Representative in Congress from the State of

Michigan 10

Maher, Walter B., director. Federal Relations, Chrysler Corp 33

Mangano, Michael, Deputy Inspector General, Department of Health and

Human Services 417

McDonough, Robert, board member. Three Rivers Area Hospital, St.

Joseph County, Michigan 251

McNamara, Edward H., executive, Wayne County, MI 126

McParland, Susan K., staff attorney, Michigan Legal Services 136

Scott, Deborah, office of executive, Wayne County, MI 126

Smith, Vernon K., director, Medical Services Administration, Michigan

Department of Social Services 87

Material submitted for the record by Hon. John Waihee, Governor of Florida:
Letter and statement 457

(III)

MEDICAID PROGRAM INVESTIGATION

FRIDAY, FEBRUARY 28, 1992

House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Oversight and Investigations,

Detroit, Mich.

The subcommittee met, pursuant to notice, at 9 a.m., in the
Wayne State University Student Center Ballroom, Detroit, Mich.,
Hon. John D. Dingell (chairman) presiding.

Mr. Dingell. The subcommittee will come to order.

Before the business of the committee commences, I would express
the thanks of the Chair of the subcommittee to all that have
helped make this possible, including Wayne State University and
Dr. Adamany. Their assistance has been outstanding. We believe it
will help us to gather the facts we need to move forward on one of
the great problems that confronts this Nation — the problem of de-
livery of adequate health care and the deterioration of an already
inadequate system that has imposed enormous hardships on indus-
try, individuals and government alike, at all levels.

I want to express my particular thanks to my two dear col-
leagues on the Committee on Energy and Commerce. The first, Mr.
Dan Schaefer, my good friend and colleague, who has come here
from Washington but who serves ably the people of the State of
Colorado, a State for which I have a particular fondness and a
great sense of warmth. Mr. Schaefer is a very valuable Member of
the Committee on Energy and Commerce, and he has other quali-
ties that endear him to me, as he very well knows.

The other, of course, our good friend and colleague Mr. Upton •
from Michigan. Mr. Upton is, again, an extremely available
Member of the Committee on Energy and Commerce, and it is to
Mr. Upton that I look in many instances for assistance in dealing
with some of the savage problems that confront the State of Michi-
gan. I would say, in those matters, neither he nor our good friend
Mr. Schaefer have ever been found wanting.

When we have Michigan problems, the fact that Mr. Upton and I
do not sit on the same side of the political aisle has never in any
way divided us or prevented us from working in close harmony for
the welfare of the State and the country.

I also want to thank and express my gratitude to my dear friend,
Mr. Conyers, a colleague from the State of Michigan, the Chairman
of the Government Operations Committee, one of the most impor-
tant investigative and legislative bodies in the United States, for
his presence today and for his assistance to us. He, like the other
three of us here before you, has long been interested in the prob-

(1)

lem of providing adequate medical care to the people of this coun-
try. And, like the other three of us, he is going to be working very
diligently to resolve this enormously difficult issue.

I have a lengthy statement which without objection will be in-
serted into the record. I will summarize it very briefly for the pur-
pose of the hearing so it can be understood.

First, we are troubled about the fact that we have a $1 trillion
health bill in this country, with some 35 million Americans receiv-
ing no health care whatsoever and some 35 to 37 million receiving
inadequate health care.

We are consuming, at this time, 12 percent of the gross national
product to pay the costs of providing health care services to the
people of the United States. That figure is the most rapidly grow-
ing cost item in the American economy, growing at the rate of 12
to 15 percent per year.

By the year 2060, some 100 percent of the gross national product
of the United States will be expended on one particular activity —
that is, providing health care, leaving nothing for any other human
activity, investment or anything else in this Nation.

That is clearly intolerable. Our current system leaves enormous
numbers unserved, poorly served, but with still excessive costs to
those who do get care

In Canada to the north, 8 percent of the gross national product is
spent on health care costs. In Britain, 6 percent. Yet in those two
nations, everyone, everyone receives basic health care needs as a
matter of right, and their cost containment mechanisms work far
better to prevent the kind of economic excesses that we see not
only presently but in the future for this country.

The United States has found that its system of Medicaid is not
working. This subcommittee has had a number of hearings that
have identified fraud, abuse and waste in the system. This hearing
will, in part, review those questions. But it will, in part, review a
number of other items.

The subcommittee has found excessive charges in billings for
Medicaid bills. It has found that there are major problems with
regard to health care billings. Some 5 to 15 percent of health insur-
ance claims, according to the Chamber of Commerce, are indeed
fraudulent.

Some $50 to $80 billion each year is squandered in wasteful,
fraudulent schemes. The total administrative burden imposed on
this country, not seen in places like Canada or Britain because of
their single-payer systems, is somewhere between $100 and $200
billion of the $1 trillion costs, which, I reiterate, all are going up at
an excessive rate.

We are being forced to choose between health care for our
people, and different kinds of health care for different classes of
people. At this moment health is being rationed by the simple in-
ability of both the system, individuals and our insurers to provide
health care for our people. Clearly, that must be corrected.

The United States faces a crisis in this area. It is one which is
not coming. It is one which is here. None of the choices before this
Nation is easy. None of the choices is going to be without cost.
Clearly, if they are faced now and if we understand what we have
and what must be done, we can actually come out saving money

and having better, fairer and more equitable treatment for our
people.

[The opening statement of Chairman Dingell follows:]

Opening Statement of Hon. John D. Dingell

Over the course of the last year, this subcommittee has conducted a series of hear-
ings examining the causes fueling the deterioration of our Nation's health care de-
livery system, with particular focus on the Medicaid program. We have heard from
State and Federal Government officials, providers and community leaders. Unfortu-
nately, the picture that is coming into focus is the unchecked growth of a $700 bil-
lion medical-industrial complex that is crippling our economy and shortchanging
our citizens.

What we have heard at our hearings is that there are more than enough "vil-
lains" responsible for this mess. Many in the industry are too often motivated by
avarice. Many patients have unrealistic expectations and continue to want every-
thing at little or no cost to them. Befuddled bureaucrats are choking themselves,
providers and insurers with their own paperwork glut. And often well-intentioned
policymakers pass laws designed to make more services available to more patients,
to save taxpayers' money and to improve the quality of care — only to find, too late,
that the laws can have exactly the opposite effect.

In these troubled economic times, the health care industry is unique in its virtual-
ly unparalleled revenues and high profits. This system — whether by design or ineffi-
ciency— overcharges patients, insurance companies and the government seemingly
at will. Despite all the government regulations, and despite all the insurance compa-
ny and independent audits, some hospitals still charge exorbitant amounts for
countless products. One example is the Humana Hospital Corporation, and one of
those items is the $103 crutch — for which Humana paid $8. But the crutch was not
an isolated case. The costs of 1,500 items were reviewed by this subcommittee. We
found that over 40 percent of the items' costs were marked up 500 percent or more,
and that almost 20 percent were marked up 1,000 percent or more. Equally trou-
bling is that no one had caught those overcharges. In fact, apparently no one has
ever even questioned those bills. None of the oversight mechanisms, redundant sys-
tems, and paperwork has identified what the subcommittee believes to be wide-
spread practices throughout the hospital industry — nor has it significantly recouped
any overcharges billed to the government. That is a particularly alarming conclu-
sion when the price tag for the administration of these programs is projected at
some $4 billion for Medicaid, $2 billion for Medicare and close to $130 billion in the
private insurance industry.

Unfortunately, there is still more waste, fraud and abuse in the behemoth that
our health care system has become. The Chamber of Commerce estimates that 5 to
15 percent of all paid health insurance claims are fraudulent. Experts warn that
between $50 to $80 billion each year is squandered in wasteful and fraudulent
schemes. Earlier this month here in Detroit, FBI Director William Sessions an-
nounced that 50 more agents will be assigned to ferret out health care fraud.
Indeed, the Bureau stated that just as it used an arsenal of sophisticated investiga-
tive techniques to address organized crime in the 1980's, similar efforts to combat
health care fraud will be critical in the 1990's.

The millions, if not billions of dollars, in undetected fraud could be well spent to
reweave a health care safety net for the growing numbers of those going without
health care. Those millions could also be used to avoid the $11 billion bill paid by
this country's manufacturers to hospitals for care they provide to people who are
not eligible for government health benefits or who are uninsured. That cost shifting
obscures who is really paying for what, making it ever more difficult to devise effec-
tive cost control mechanisms that also protect patients from poor quality care. And
it makes it more difficult for our businesses to compete, as the burden is shifted to
them at a time that they themselves are grappling with the rising costs of health
care benefits for their own employees, furthermore, it creates yet another means for
the less scrupulous to hide their overbilling, double billing and other fraudulent fi-
nancial practices.

Other factors add still more to the health care bill. The deteriorating doctor/pa-
tient relationship — which many suggest is a direct result of this market-driven
system — has driven up costs. Many physicians and policymakers believe that the so-
called "malpractice crisis" has driven providers to practice more "defensive medi-
cine." The Rand Corporation concluded recently that $50 billion a year could be
trimmed from the medical bill if unnecessary procedures were weeded out. The
"malpractice industry" is blamed for rising costs to the tune of $8 to $30 billion

each year. As more and more States — and now the President — call for malpractice
reform, the truth is that we don't know the extent to which malpractice litigation
forces costs up and whether costs will go down as a result of the types of reform
being proposed.

The Medicaid program reflects all these problems, both here in Michigan and
across the country. Today is not the first time that we have examined Michigan's
mounting problems, and our State's efforts to cope with them. My good friend. Rep-
resentative David Hollister, recently testified before this subcommittee in Washing-
ton on the difficult choices being made here at home. I am acutely aware that our
great State — which once could boast one of the best Medicaid programs in the coun-
try— is now struggling to maintain even minimum benefits.

As you know only too well, Medicaid has eaten up the State budget— just as it has
in other States. Total State health care spending has increased by $2.6 billion since
1981— up nearly 130 percent in 10 years. At the same time, Michigan has lost $10
billion in Federal funding. And local governments have borne 75 percent cuts in
real terms. As Federal funding has dwindled, Federal mandates for Medicaid have
mushroomed, leaving the States holding the bag.

Making matters still worse, Michigan's economy has suffered tremendous blows.
Our State has lost over 33 percent of its manufacturing jobs since 1980. In the all
too rare instances in which new jobs have been created, 60 percent of them pay less
than $7,000. Not surprisingly, over 1 million people in Michigan — the majority of
whom are working — are going without health insurance.

The sad facts of more and more layoffs and budget cuts in Michigan are that new
categories of people are in need of social services of all types. Homelessness has
taken on new meaning as more of our citizens have family members or neighbors
who have been laid off and left with no means to support themselves or their fami-
lies. Detroit continues to have the highest rate of infant mortality of any city in the
country. Without some relief, the health of the people in Michigan who are going
without care will continue to deteriorate and the long-term human and economic
costs could well be far greater than the cost of any universal health care system we
might adopt.

The bottom line is one that no one wants to hear. Some people are going without
medical care while others have too much for their own good. Small businesses are
hard pressed to afford the skyrocketing costs of insurance for their employees.
Larger businesses. State and Federal Governments are left holding the bag, paying
the costs for those who do get care but who have no insurance. And, finally, the
States are left to make the tough choices of how to slice up the ever smaller budget
pie.

Questions and trade-offs abound. Should jobs programs take precedence over
health care programs? Do nutrition or substance abuse programs improve the public
health more than traditional "health care" programs? What is the real payoff of
preventive health care programs — do they warrant more funding than those for
organ transplants, experimental procedures or research? Is education more impor-
tant than health care? Do sound environmental programs contribute more to the
public health than the high tech medicine that we have come to expect? How should
scarce resources be divided between the working middle class, the indigent or the
working poor? What is the proper balance between the needs of the elderly versus
the needs of the young?

None of these answers and choices is easy, but we need to find the answers and
make those choices now. Testimony by today's witnesses, and statements submitted
by others invited but unable to attend, will help all of us address the crisis in the
Medicaid program and in the health care delivery system.

Mr. DiNGELL. With thanks and gratitude, I now recognize my
good friend from Colorado, Mr. Schaefer, for such opening state-
ment as he chooses.

Mr. Schaefer. I thank the Chairman and I thank you for the op-
portunity to be here. I am pleased to be in the great State of Michi-
gan. I wish we had more than one night, but, because of the tax
bill yesterday, we all came late. We finally broke some ice in the
tax situation, and now have to deal with health care costs.

It is truly a grave situation we are facing in both our private and
public health care systems. Increased health mandates have
brought shortfalls of money, which has been reallocated from other

important programs, such as education. To ensure that Medicaid is
fully funded, we have to look for some new ways.

The situation in the State of Colorado is so serious that we have
examined the drastic option of discontinuing participation in the
Medicaid program. This would mean forfeiture of over $500 million
in Federal matching funds.

However, this burden of Federal mandates has forced my State
to look at the options. The Nation is facing a great crisis in medical
care. How we finance it, both in our private and public health care
system, is certainly a problem.

I am pleased to see that the administration has finally put forth
a health care proposal and that responsible reform efforts are gain-
ing greater attention on the Floor of Congress. Hopefully, between
the two, we will be able to work out something in the near future
which will adequately take care of the many millions that are un-
derinsured or not insured.

I am hopeful that today's hearing will help shed some light on
this critical situation, and I certainly look forward to the testimony
of the witnesses. In particular, I want to see what the individual
problems are here in Michigan and try and compare it to what we
have in the State of Colorado, and other States throughout the
country.

Mr. Chairman, I am pleased to be here today, and I certainly
look forward to the testimony. I yield back.

Mr. DiNGELL. The Chair thanks the distinguished gentleman
from Colorado.

The Chair recognizes our good friend from Michigan, my col-
league, Mr. Upton, who works closely, as I mentioned, with the
Chair on a number of matters of great importance. The Chair rec-
ognizes Mr. Upton.

Mr. Upton. Thank you, Mr. Chairman. I commend you for call-
ing these hearings. In fact, this is one of the few this subcommittee
has held outside of Washington.

The fact that it is being held in our home State, of course,
heightens my interest, because it serves to demonstrate the sub-
committee's strong concern with the failure to provide and main-
tain an adequate level of health care for our citizens. Clearly our
health care system is broken and it needs to be fixed.

We heard testimony in October of 1991 about how rapidly in-
creasing costs of the Medicaid programs have affected State budg-
ets. Indeed, the costs of Medicaid have become a major budgetary
concern of the States. They are concerned about recent congres-
sionally mandated expansions in Medicaid populations, arguing
that Congress has failed to consider the impact on expansions on
already strained State budgets.

States have been forced to do a number of novel approaches, in-
cluding the use of so-called voluntary donations on taxes on health
care providers. I will be interested in hearing about innovative ap-
proaches taken by the State of Michigan, both by government as
well as the private sector.

The subcommittee has a very full slate today. We are going to
hear about problems of access to care, volume of care, and cost of
care from virtually all parties concerned — State and local govern-

ments, business, health care providers, an advocate for recipients of
care, both urban as well as rural.

I would like to welcome Jim Foster, Administrator of the Three
Rivers Area Hospital in St. Joseph County, located in the district I
represent. He is certainly qualified to discuss the problems faced by
rural communities in providing and maintaining adequate levels of
health care. Too many times, the rural perspective it seems to me
to get short shrifted because the national media tend to focus on
the admittedly overwhelming problems in urban areas.

But lack of coverage doesn't mean lack of pain. Mr. Foster is
going to demonstrate that that county feels the pain every bit as
the urban counties do. Mr. Foster will show us how to raise the
constituencies' effectiveness to get together and address the serious
problems of health care, access and quality of cost.

I thank the staff and the chairman for putting together the hear-
ing. I welcome the witnesses.

Thank you, Mr. Chairman.

Mr. DiNGELL. The Chair thanks the gentleman.

The Chair recognizes our good friend and colleague, Mr. Conyers.

STATEMENT OF HON. JOHN CONYERS, JR., A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF MICHIGAN

Mr. Conyers. Thank you, Mr. Chairman.

I am happy to be here for several reasons. The first is that this
was probably a part of Detroit that Chairman Dingell himself once
represented, and it is good to have him back in the city. Number
two, this is the school at which I obtained some humble under-
standing of what academic subjects were about, and where I at-
tended law school as well.

So I am happy to be on this campus and to join my friends on
this subcommittee on a subject that is very, very dear to me.

The first thing that Chairman Dingell told me is that this is not
about national health care. I am happy that he did because he and
I are both deeply concerned with that subject, and the question of
national health insurance is one that we are both working on.

But this subject is about a matter that the Committee on Govern-
ment Operations has dealt with on Medicaid, on which we have a
GAO report dated from November of 1990, and in March of last
year we held hearings in Detroit, in the Federal building, on this
problem.

Unfortunately, the GAO report and the hearings dealt with
third-party liability and the way moneys are not fully being collect-
ed from Blue Cross/Blue Shield of Michigan, and I am happy to
have the chance to meet Dr. Vernon Smith of the Michigan Medi-
cal Services Administration, with whom we will be having a long
and friendly relationship.

The question of Medicaid raises the subject of the health care
problems of the medically underserved in Detroit. We are spending
through the Medical Services Administration over $2 billion a year,
$51 million in the county care program in Wayne County, which
after reconsideration on the part of Governor Engler, was reinsti-
tuted in the budget. But on analysis by our good friend the attor-
ney general, he found that we didn't fix it up right in the legisla-

ture. This is a very important part of this hearing, and we will
hear some comments about it from the appropriate witnesses.

The State's Medicaid budget has been rising rapidly for a lot of
reasons, and we have experienced a 10 percent increase in the last
year. And, at the same time, Michigan's cuts to general assistance,
including the attempt to eliminate county care, have created intol-
erable tensions.

In addition to that, the Medical Services Administration, Chair-
man Dingell, is trying to enact a state-wide managed care approach
for Medicaid, and while it is a legitimate effort to control costs, it is
going to present some wrenching problems when we start talking
about the medically underserved being put on a managed care-per-
capita approach in the delivery of these health services.

In Detroit, the hospital failures are mounting. North Detroit
General and southwest Detroit hospitals are both in Chapter 11. As
a matter of fact, we are working on a program through the federal-
ly qualified health center provisions to examine restoring them as
community clinics.

But the fact of the matter is that there are inadequate reim-
bursements for both Medicare and especially Medicaid. We need to
examine for this hearing that 300,000 people who live in Detroit
have no health insurance. That is nearly a third of everybody in
this city, a rate far higher than the national average. And that is
before we figure in the projected cuts and layoffs that General
Motors has gratuitously visited upon this city and State.

At the same time, the infant mortality rate in Detroit is that of a
Third World nation. We are at 26 deaths per 1,000 births. That
puts us right next to Guatemala in terms of an infant being born
and living to year one.

We have a very serious problem. I want to thank Chairman Din-
gell and Sandy Levin, who was at my hearing in Detroit last year,
for doing the kind of important oversight work on health that you
are doing.

Thank you so much for letting me say good morning in my own
way.

[The opening statement of Mr. Conyers follows:]

Opening Statement of Hon. John Conyers, Jr., a Representative in Congress
From the State of Michigan

Mr. Chairman and members of the subcommittee, it is a pleasure to be with you,
here at home today, to discuss what has emerged £is one of America's top two eco-
nomic and social challenges: reform of our ailing health care system.

Today we will hear of the problems of providing and financing health care for
Michigan's poor and medically underserved under the Medicaid program. The very
fact, Mr. Chairman, that we must hold hearings on this subject is illustrative of a
fundamental problem with our health care system: it is a two-tiered system. There
is one system for those who can afford private health insurance, and there is an-
other system for those who cannot. Both tiers of this system are failing miserably.

And we are here to talk about money — ^the precious $2 billion every day, the $84
million every hour, and $23 thousand per second we spend as a Nation under our
current system. We have the best health care in the world, but the world's worst
delivery system.

Spencing on both tiers of our health care system is expanding at an exponential
rate, Mr. Chairman, whether it be for Medicaid or private insurance. In 1991, the
Nation's spending on health care reached $738 billion. This constituted: (1) an in-
crease of 10.8 percent from 1990; (2) an increase at a double-digit rate for 4 consecu-

tive years; and (3) an increase more than twice as fast as the 5.1 percent growth
rate of the economy last year.

Beyond the impact on families, corporations, health care providers and govern-
ment that we see every day, out of control health care costs are eroding our ability
to compete in world markets — not gradually but rapidly. In 1990 we spent 12.4 per-
cent of our Gross National Product (GNP) on health care. In the same year our
trading partners and competitors spent markedly less: Canada 9 percent, Japan 6.5
percent, Britain 6.1 percent. If we do nothing, the percentage of GNP we spend on
health care is expected to reach 18 percent by the year 2000 — nearly $1.8 trillion.

The cost of doing nothing about our health care system isn't just measured in dol-
lars. It's measured in lives lost and hopes dashed. It's measured by the 35 million
men, women and children who have no health insurance today. It's measured in the
numbers of closed hospitals and health centers in our cities and rural areas. It's
measured in the anxiety of the uninsured and of the American workers who strug-
gle to pay insurance premiums and copayments and avoid changing jobs out of fear
of losing their health insurance.

It is indeed a two-tiered system, Mr. Chairman. If you can't pay for health care,
for the most part you are out of the system £ind out of luck.

The upper tier — ^the system for the 60 percent of Americans who can afford health
insurance — is a twisted collection of over 1,200 insurance companies, each with its
own set of rules and billing procedures, and without coordination, uniformity, or
decent cost control. As one might expect, the costs for the upper tier expand expon-
entially each year: private insurance costs rose from $73.4 billion in 1980 to $216.8
billion in 1990. And as costs to insurers rise, millions of Americans each year fall
from the upper tier to the lower, as working people are priced out of the system and
insurers "just say no" to individuals and businesses who are considered bad risks.

The lower tier — the system for the 8 percent of Americans on Medicaid, and the
35 million uninsured, 72 percent of whom are above the poverty level — has become
a nightmare for Federal and local governments alike. The Federal share of Medic-
aid, the focus of our attention today, is projected to grow 203 percent by 1996, to
$105.3 billion.

States have it worse: State Medicaid costs in the aggregate accounted for 14 per-
cent of total State spending in 1990 and it is estimated that Medicaid will reach 22
percent of State spending by 1995. So, charged with matching the Federal share of
Medicaid, dozens of States in budget straitjackets, like Michigan, are forced to
either cut back on Medicaid eligibility or attempt any number of accounting tricks
to put up their share.

In the end, it's the people who need comprehensive health care the most that pay.
Providing health care to the medically underserved, the disenfranchised, and the
unemployed just doesn't have much political support. And so every year Medicaid
and other programs for the underserved — like CountyCare, the health care program
for Wayne County's underserved who don't qualify for Medicaid — are woefully un-
derfunded.

We say this problem last year when Governor Engler pulled out his budget meat-
axe and slashed the General Assistance program and funding for CountyCare. Only
after a storm of protest from more principled legislators and citizens was he forced
to reinstate funding for this critical program. And now CountyCare is in jeopardy
once again after Michigan's Attorney General ruled last month that the legislation
reviving the program is unconstitutional.

The result of this lack of financial commitment to health care for the underserved
results in trickle down payments to the lower tier. Medicaid reimbursement rates to
doctors and hospitals don't cover costs and amount to little more than an assault on
providers. Reimbursements are known to be about 55 percent of provider costs. Pre-
dictably, inner-city hospitals, like North Detroit General and Southwest Detroit —
the majority of whose patients are on Medicare or Medicaid or who are uninsured —
go under.

The two tiers of America's health care system are collapsing while their costs ex-
plode, Mr. Chairman. In the short term, we can hold hearings like this one, scrape
together a little more money, or introduce legislation in a frantic attempt to plug
the holes. But the real answer to these problems we will hear about today — the one
we must all fight for — is a health care system that insures all Americans under the
same policy: a system that provides universal, national health insurance.

The benefits of national health insurance here, Mr. Chairman, would be enor-
mous. Detroit needs it most because we are hit twice as hard as the rest of the
Nation. Over 300,000 Detroit residents lack health insurance — that's 27 percent of
the city's population and twice the national rate. Detroit's infant mortality rate is
twice that of the rest of the Nation, and approaches that of the poorest Third World

nations. The average Detroit resident can expect to live 9 years less than other
Americans. Few places in America have a more desperate need for a new health
system than Detroit.

Mr. Chairman, I am an advocate of a single-payer national health insurance pro-
gram based on the Canadian model, with modifications to take account of the
strengths of the U.S. system. Basically, the Federal Government would provide
health insurance to all Americans, just as it provides retirement insurance through
Social Security. The program would be administered by the 50 States, whose govern-
ments are closest to the people. Fair fees and budgets would be negotiated with doc-
tors and hospitals to further contain costs.

The General Accounting Office, the non-partisan research arm of the Congress,
conducted an 18-month study for me on a Canadian-style single-payer system. The
GAO estimated savings of $67 billion in 1 year under such a plan by reducing the
paperwork morass caused by so many insurance companies. That savings is enough
to insure all Americans currently without coverage and eliminate co-payments and
deductibles for everyone else. No other health care reform proposal can make such
a claim.

Under such a single-payer plan, Americans would still have the freedom to choose
the doctors of their choice. Doctors would not be employed by the government any
more than they are today. Hospitals would still be publicly or privately run. Hospi-
tals like Southwest Detroit, North Detroit General and others would be relieved of
the crushing burden of uncompensated care, as all Americans would have their doc-
tor's bills paid for them. Without the mountains of paperwork and the incessant
competition with other facilities, doctors and hospitals could get back to caring for
people rather than competing for market share.

I held hearings in Detroit last summer on the need for national health insurance
and remain convinced that it is the only way for us to pull ourselves out of the
health care crisis. The costs of doing nothing, as we will see today, are far too great.

Mr. Chairman, I would also like to draw attention to the problems of fraud and
abuse in the Medicaid system. The Committee on Government Operations, which I
have the pleaisure of chairing, has investigated problems that State Medicaid agen-
cies have in making sure that insurance companies reimburse the government for
care they are liable for.

Federal law requires private insurance companies, such as Blue Cross and Blue
Shield of Michigan, to pay health care claims of Medicaid recipients when the pri-
vate plan covers the service. In effect, Medicaid is the payer of last resort. An exam-
ple of this kind of coverage is a single parent family on Medicaid where the children
are privately insured through the absent parents employer.

Here in Michigan, I had the General Accounting Office, investigate complaints
that the Michigan Medicaid agency — the Medical Services Administration — has en-
countered serious problems in recovering money owed to it by Blue Cross and Blue
Shield of Michigan.

The report found that in one 18 month period, from September 1988 to April 1990,
Medicaid paid $59 million in claims to doctors and hospitals which by law Blue
Cross is potentially liable for. Only $5 million has been recovered from Blue Cross. I
am not suggesting that Blue Cross is liable for the full amount, but given the
present poor state of the computer interface between Michigan Medicaid and Michi-
gan Blue Cross, we can't tell whether they owe 50 cents on the dollar or 10 cents on
the dollar. Whatever the amount, when you consider that all other 49 States have a
similar problem it adds up to a tidy sum owed to the Federal and State govern-
ments.

The GAO blamed all parties for this mess. The State for not using all its tools to
correct the problem; Blue Cross for establishing legal or administrative barriers to
postpone or halt payments to Medicaid; and the Health Care Financing Administra-
tion, the Federal Agency charged with oversight, which failed to identify the prob-
lem and work with the State to correct it.

I am continuing to closely monitor the situation here in Michigan to see what
progress the State is making in recouping what Blue Cross owes it, and to limit
future losses. I also hope to work with your committee, which has jurisdiction over
reforms to Medicaid, to see if we can correct this problem with insurance companies
and Medicaid programs across the country,

I thank you for the opportunity to be here today.

Mr. DiNGELL. The Chair thanks the gentleman.

The Chair is delighted we are joined by our good friend and col-
league from the State of Michigan, the Honorable Sandy Levin who
ably represents the State on the Committee on Ways and Means.

All of us here at the table have worked very closely with him on
matters affecting Michigan. A fine and respected Member of Con-
gress, and we are honored that he is with us this morning.

He is also a member with major jurisdiction in the area of health
and has characterized his term by his concern over these issues.
The Chair recognizes the gentleman from Michigan.

STATEMENT OF HON. SANDER M. LEVIN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN

Mr. Levin. Thank you very much, Mr. Chairman. I appreciate
the invitation to let me join you. We have a very distinguished
number of witnesses, so I will just be very brief.

This hearing is focusing on Medicaid, and the Energy and Com-
merce Committee under your leadership has jurisdiction over it.
The two committees. Energy and Commerce, and Ways and Means
share jurisdiction over many other health matters. And though I
could not be here for the entire morning, I did want to take advan-
tage of your kind invitation to listen in on some of the testimony
between the two committees with the active cooperation and in-
volvement of Government Operations.

We have a big task ahead of us, to try and reform the health
care system of this country, and Medicaid is an important piece of
it.

So again, to you, Mr. Chairman, to your colleagues and my col-
leagues from the Republican branch, Mr. Conyers, I am very
pleased to be able to join you this morning. Thanks again.

Mr. DiNGELL. The Chair thanks the gentleman.

The first panel is composed of Mr. Frank Garrison, President of
Michigan AFL-CIO, and Mr. David Hirschland, United Auto Work-
ers, Assistant Director, Social Security Department.

The Chair is happy to welcome you to come forward to the wit-
ness table. We will be delighted to have your testimony.

The Chair will recognize my old friend, Mr. Garrison, for such
statement as he chooses. Welcome. Thank you again. We are
pleased that you are here.

STATEMENTS OF FRANK GARRISON, PRESIDENT, MICHIGAN AFL-
CIO; AND DAVID HIRSCHLAND, INTERNATIONAL UNION ASSIST-
ANT DIRECTOR, SOCIAL SECURITY DEPARTMENT, UNITED
AUTO WORKERS

Mr. Garrison. My good friend John, it is good to see you again
this morning. It seems like I see a lot of you lately.

Let me express my thanks from the entire labor movement here
in Michigan for your timely concern about the problems of health
care in this country in general and in Michigan in particular. It is
the kind of attention to the problems of people that we in the labor
movement have come to expect from your leadership since you
have served in Congress.

The problems of health care in Michigan has become acute, par-
ticularly over the past year, not because of any natural plague or
contagion that has swept our State but from man-made causes, a
recession made in Washington and a set of mean-spirited budget
cuts in Lansing.

The reckless financial policies of the Reagan-Bush years have fi-
nally come home to roost. The mindless deregulations of our finan-
cial institutions, the encouragement of speculative lending of de-
positors' dollars and the laxity of safeguarding the safety and secu-
rity of deposits have left our financial institutions crippled in their
ability to lend and stimulate economic recovery.

More than the tripling of the national debt in 11 years has crip-
pled the Federal Government's ability to respond. We have lost as
many jobs in this recession as in any since the Great Depression,
and the end is not yet in sight.

Our members were shocked to see that a President who promised
to bring a kinder, gentler Nation, last year twice vetoed bills that
were passed by Congress to extend unemployment benefits. And,
thankfully, he saw the light, and we did pass some extension to the
unemployment benefits.

There has been one special feature of this Bush recession, the
fact that so many of the newly unemployed have not just been tem-
porarily laid off. Their jobs have been eliminated. And this is true
among white-collar workers as well as blue-collar workers. And I
can report to you this morning, Mr. Chairman, that I have never
seen so much job insecurity amo^ig those who still have their jobs
as we are seeing in the workplace today.

To make matters worse, just when our social safety net is needed
the most, the reckless budgetary policies of Governor Engler have
not just weakened the net, they have torn it to shreds. Mental hos-
pitals have been closed and patients dumped into the community
without adequate facilities. Emergency need programs established
under Governor Milliken and Governor Blanchard have been
slashed, and hundreds of thousands of Federal recipients have been
cut off, unable to do gainful work, let alone find jobs in this de-
pressed economy.

Let me mention just one case, a 51-year-old widow. When her
husband was alive they both were working and they owned their
own home. Then he died, and she, after 14 years, was working as a
bus driver, was forced to stop working about 2 years ago when she
passed out right after work. She was rushed to the hospital and re-
ceived a pacemaker for an irregular heartbeat.

She still has high blood pressure and difficulty climbing even
short flights of stairs. She lost her job and has been rejected for
several others because of her health conditions. For a year or so
she was receiving $160 a month in general assistance, barely
enough to make ends meet. But when John Engler came to office,
it was abruptly eliminated. She has lost her Medicaid and her pre-
scription coverage so she went 4 months at a time without blood
pressure medicine.

Recently, she spread out for the reporters all the notices of rejec-
tions from the Department of Social Services and said, it is affect-
ing me terribly, mentally, physically. All she gets now is $111 in
food stamps. And, while her doctors recommend a special diet, she
can't afford the items on the diet.

The results of these two convulsions from Washington and Lan-
sing is that, more than ever, people from Michigan have become
aware of the inadequacies of our present health care insurance
system. Those who are still working are more worried than ever

before that they will lose their employer-provided health insurance
as soon as they are laid off.

In today's world, an unemployment check will barely cover the
cost of a family's health insurance policy, let alone pay the mort-
gage or the rent and put food on the table. Likewise, in Michigan,
there are those unable to work who have all too often been forced
to make impossible choices between medicine and food.

Mr. Chairman, you and a few other farsighted political leaders
have long been aware of the need for a national universal health
insurance with effective means to check the spiraling of health
care costs. I am here to report that working people in Michigan,
from those with the best existing coverage to those who have none,
are ready to work and demand such legislation.

Thank you, Mr. Chairman.

Mr. DiNGELL. The Chair thanks the gentleman. Mr. Hirschland,
we welcome to you.

STATEMENT OF DAVID HIRSCHLAND

Mr. Hirschland. Mr. Chairman, I am David Hirschland. I am
Assistant Director of the Social Security Department of the Inter-
national Union, UAW. I want to thank you for the opportunity to
testify on behalf of the 1.4 million active and retired members of
the UAW and their families on the subject of public health issues. I
would like to summarize my statement.

Mr. DiNGELL. Without objection, your statement will be inserted.

Mr. Hirschland. The crisis in America's health care system has
been well documented. The problems span all aspects of the
system, including rising health care costs, lack of access to care,
waste and inefficiency in the system, and questionable quality of
care.

The UAW believes nothing short of total reform will enable the
United States to get a handle on these complex and interrelated
problems. More and more of the available income of the people of
this country is going to health care costs.

In 1990 the United States spent over $660 billion on health care,
which amounted to 12.2 percent of our Gross National Product. In
1991, spending increased to $738 billion.

And the Commerce Department has predicted that Americans
will spend $817 billion in 1992, contributing to a record 14 percent
of the U.S. Gross National Product. The skyrocketing costs of
health care adversely affect the international competitiveness of
many businesses and threaten the job security of millions. Older,
long established companies are affected because they tend to have
a higher ratio of retired workers and an older active workforce,
both of which result in higher health care costs.

The UAW believes employers should not have to compete on the
basis of their health care costs. There should be a level playing
field, with all employers sharing equally in the costs of providing a
basic level of health care protection to Americans.

The problem of rising health care costs is aggravated by cost
shifting between employers, as well as the growing problem of cost
shifting for public programs, such as Medicare and Medicaid, to
private employers.

This cost shifting has resulted in a situation where hospitals in-
crease the rates they charge for private payers in order to offset
any reductions of public payments or losses due to uncompensated
care.

The American health care system is plagued by waste and ineffi-
ciency. A 1990 study by the Citizens Fund estimated commercial
health insurance carriers spend 33.5 cents for administration, over-
head and marketing costs, in order to provide a dollar of health
care benefits.

This is 14 times more than the 2.3 cents it costs Medicare, and 11
times more than it costs the national health care system.

While the cost of health care continues to rise, many Americans
do not have access to adequate health care services. Over 37 mil-
lion people are without insurance, two-thirds of whom are working
people and one-third of whom are children.

The UAW believes that Americans should be entitled to health
care as a basic right. Rising health care costs, and the resulting ef-
forts by employers to cut back on health insurance coverage, have
been a major issue in almost every set of UAW negotiations in
recent years.

The attempts at cutbacks have affected our ability to assure cov-
erage for laid off and retired workers and their family. Loss of
health care benefits for these workers can be devastating.

Mr. Chairman, the interrelated problems of soaring health care
costs and declining access to care cry out for fundamental reform.
UAW is firmly convinced a Canadian style single payer social in-
surance program represents the best means of achieving all the
goals of flat health care reform.

First, by guaranteeing universal access to health care for all
Americans, this approach would serve to improve the health status
of Americans. Access to health care would be a basic right, irre-
spective of health status, employment or income.

Second, by establishing a single government payer, this approach
would achieve substantial administrative savings. The waste and
inefficiency associated with the existing multitude of private insur-
ance carriers could be avoided.

Third, by establishing a uniform all payers system for reimburs-
ing health care for providers, this approach would eliminate cost
shifting between public and private payers. Private employers
would no longer have to indirectly subsidize our public health care
programs.

Fourth, and perhaps most importantly, by establishing a manda-
tory, enforceable budgeting process, this type of approach would
guarantee that health care spending would be contained within
certain limits.

Fifth, a single payer approach makes significant strides towards
improving the quality of health care in this country.

In particular, under a single payer system, outcomes in research
findings can more easily be fed back into the system in a broad-
based effort towards continuous quality improvement.

Sixth, the single payer approach represents the best means of as-
suring that the costs of providing health care are distributed in an
equitable and progressive manner. This type of approach would

eliminate cost shifting between employers, as well as the shifting of
uncompensated care costs.

A level playing field would be established between all employers,
regardless of health status, age, or composition of their workforce.
And progressive taxes on corporations and wealthy individuals can
easily be used to help finance this type of program.

Mr. Chairman, the UAW appreciates the opportunity to express
our views on the public health of this country.

We commend your efforts and contributions. We look forward to
working with you and other members of this committee as you
struggle with these issues. Thank you very much.

[Testimony resumes on p. 27.]

[The prepared statement of Mr. Hirschland follows:]

STATEMENT OF

DAVID HIRSCHLAND
ASSISTANT DIRECTOR, SOCIAL SECURITY DEPARTMENT
INTERNATIONAL UNION, UAW

Mr. Chairman, I am David Hirschland, Assistant Director of the
International Union, UAW, Social Security Department. I want to thank you for
the opportunity to testify on behalf of 1.4 million active and retired members of
the UAW and their families on the subject of public health issues.

The crisis in America's health care system has been well documented: costs
are out of control, access to care is woefully lacking, the quality of care received is
questionable, and the economy of the country is being adversely affected. The
UAW believes that nothing short of total reform will remotely begin to provide an
effective solution to these complex and interrelated problems.

The cost of medical care, which is increasing at a rate faster than the rate
for other goods and services each year, is causing alarm for every segment of the -
population. The Medical Care component of the Consumer Price Index
consistently increases at a rate faster than inflation. From May 1990 to May 1991,
the MCPI increased by 9.0 percent, while the increase in the CPI was 5.0 percent.

As the country continues to experience these out of control cost increases,
and the state of the economy worsens, more and more of the available income of
the people of this country is going toward health care costs. In 1990, the United
States spent over $666 billion dollars on health care, which amounted to 12.2
percent of our gross national product. In 1991, spending increased to $738 billion.
The Commerce Department has predicted that Americans will spend $817 billion
in 1992, contributing to a record 14 percent of the U.S. gross national product.
The estimated health care bill for 1992 will be nearly double that of 1987, when

-2-

the total was $494 billion. Without immediate and effective controls, these
numbers will continue to soar.

The skyrocketing costs of health care adversely affect the international
competitiveness of many businesses, and threaten the job security of millions of
Americans. In Canada, for example, employer health care costs are approximately
one-half those in the United States; in Japan, about one-third. That kind of
disparity is seen as an incentive by multinational corporations to transfer more
production and plant investments outside this country.

Escalating health care costs also unfairly affect the competitiveness of
older, long established companies compared to newer employers within this
country. There are two major reasons for this. First, older companies tend to have
a higher ratio of retired to active workers than newer competitors. Thus, the older
companies must bear the additional cost of paying for health insurance coverage
for their retirees. Second, the average age of the active work force often is higher
in older companies than in newer employers. Since health care costs tend to rise
with age, this also places an additional burden on older companies. It is extremely
important that any reform to the health care system address the disparities related
to older and retired workers.

The UAW believes that employers should not have to compete on the basis
of their health care costs. There should be a "level playing field," with all
employers sharing equally in the costs of providing a basic level of health care
protection to all Americans. All employers currentiy pay the same contribution
(i.e., the same percentage of wages) to Social Security in order to provide a basic
level of retirement and disability income to workers. The same principle should

-3-

be applied to the financing of health insurance coverage for workers and their
families.

The problem of rising health care costs is aggravated by cost-shifting
between employers. Too often, employers that provide health insurance for their
workers end up subsidizing those that do not, thereby increasing costs even more.
We estimate that 15 percent of the health care costs of General Motors, Ford and
Chrysler are attributable to the health care of spouses who are employed
elsewhere, but are not covered by their own employer for health insurance. This is
on top of the increases borne by the domestic auto companies, like other payers,
due to the shifting of uncompensated care costs by health care providers.

In addition to cost shifting between employers, we are also facing a
growing problem of cost shifting from public programs, such as Medicare and
Medicaid, to private employers. Public health programs have placed limits on
their per case costs through the adoption of DRGs for reimbursing hospitals.
Private payers have struggled with the resulting cost shift pressures with only
limited success. This has led to a situation where, whenever possible, hospitals
increase the rates which they charge to private payers in order to offset any
reductions in public payments. The net result is that private payers are paying
higher rates to subsidize the public programs.

The waste and inefficiency associated with the existing "multi-payer"
system also contributes to the constant escalation of health care costs. A 1990
study by the Citizens Fund estimated that commercial health insurance carriers
spend 33.5 cents for administration, overhead and marketing costs in order to
provide a dollar of health care benefits. This is 14 times more than it costs

-4-

Medicare (2.3 cents) and 1 1 times more than it costs the Canadian national health
care system (3 cents). Moreover, between 1981 and 1988, administrative,
overhead and marketing costs of commercial insurance companies increased by 93
percent, more than the increase in premiums sold or benefits paid.

While the costs of health care continue to rise, millions of Americans do not
have access to adequate health care services. The UAW believes that all
Americans should be entitied to health care as a basic right, regardless of their
employment or health status, age, income, or place of residence.

The evidence of the declining access to health care is inescapable. Over 37
million people are without insurance, two-thirds of whom are working people, and
one-third of whom are children. Nearly 60 million people are without insurance
for at least part of the year. Unfortunately, these numbers are not decreasing as the
amounts spent on health care continue to rise. In fact, the opposite is true. As
health care costs rise, coverage declines, both in terms of the number of Americans
eligible for health benefits, as well as the scope of benefits provided to those who
remain covered.

Medicaid, the federal- state program developed for insuring the poor, has
failed to cover those most needy. Today, Medicaid covers only 40 percent of
those living below the federal poverty line. Widely different eligibility standards
and Medicaid benefit levels between states undermine the program, as
beneficiaries, particularly the working poor, suffer fi*om uneven quality and
access, constantly having to face the question of whether one is "in" or "out" of the
system. Due to inadequate reimbursement levels, many physicians refuse to
accept Medicaid beneficiaries, forcing them to go to overburdened public health

-5-

clinics or hospitals. Paradoxically, because of the low levels of Medicaid
reimbursement, many of these institutions are in dire financial straights or have
already closed their doors, further reducing access to care. >

For many years, insurance companies and the medical profession assured
the American public that voluntary health insurance could accomplish the task of
providing health care to the citizens of this country. Indeed, until about 1980,
employer-sponsored health insurance covered an increasing number of Americans
with an expanding range of benefits. From the early coverage for hospitalization
and medical-surgical benefits, protection grew to include many additional services,
such as mental health and dental care, as well as preventive health strategies.

By 1980, however, it became evident that a voluntary, employer-based
system could not handle the job on its own. For the first time since 1940, the
number of Americans with health insurance protection began to fall. Looking for
ways to reduce health care costs, many employers began to restrict coverage for
their employees. They resorted to a nearly endless array of cost cutting techniques
such as: reducing or eliminating prescription drugs, dental, vision, or mental
health benefits; adding or increasing deductibles and/or copayments for basic
health insurance and/or major medical benefits; introducing or increasing periodic
worker contributions for health insurance, especially with respect to coverage for a
spouse and dependent children; and reducing or discontinuing retiree/dependent
health care benefits before age 65 and Medicare complementary coverage after age
65. Some employers even discontinued coverage altogether. As a result, costs
began to shift to other employers and to households. Employers who continued to
provide coverage suffered 15 to 20 percent increases per year in their health care
costs.

-6-

The UAW is justifiably proud of it success in negotiating health insurance
benefits for our members and their families. But although most of our contracts
provide for excellent health insurance coverage, we still face serious problems in
assuring continued access to adequate health care. I can tell you that health care
costs, and the resulting efforts by employers to cut back on health insurance
coverage, have been a major issue in almost every set of UAW negotiations in
recent years. And this problem only promises to get worse.

Even where we have been successful in resisting employer demands for
cutbacks in health insurance coverage, we have had to devote an increasing
portion of the collective bargaining "pie" to maintaining our health insurance
benefits. This means that less money is available for wages and other benefits.

The UAW has also encountered significant problems in assuring coverage
for laid off workers. UAW collective bargaining agreements with the major
automobile, aerospace and agricultural implement companies provide for
continuation of health insurance coverage for a significant period of time after
workers are laid off. But due to the lengthy nature of the layoffs in these
industries, many of our members have still lost their health insurance coverage.
Furthermore, many UAW contracts ~ particularly those covering workers
employed in smaller parts or other non-manufacturing companies do not provide
for any extended health insurance coverage. Thousands of UAW members have
lost their health insurance benefits shortly after being laid off from these
companies.

-7-

These workers literally have nowhere to turn. They usually cannot qualify
for Medicaid. But having lost their jobs, they cannot afford the exorbitant costs
associated with maintaining individual health insurance policies. The COBRA
health insurance continuation requirements provide little relief, because most laid
off workers cannot even afford the cost of the group rates available under
COBRA.

Laid off workers are not the only group who have experienced a threat to
their health security. In recent years employers have increasingly attempted to
reduce or to completely cancel health insurance coverage for retired workers and
their families. This has been exacerbated by several factors, including the changes
in accounting rules for post-retirement health insurance benefits which have been
promulgated by the Financial Accounting Standards Board (FASB), as well as the
competitive pressures faced by older manufacturing companies with higher ratios
of retired to active employees.

The UAW has consistently contested employer attempts to cjut back retiree
health insurance benefits at the bargaining table. And since 1980, the UAW has
been involved in numerous lawsuits seeking to prevent reduction or cancellation of
health insurance coverage for thousands of retired members and their families.
Many of these cases have involved plant closings or bankruptcies.

Where employers have been successful in reducing or eliminating retiree
health insurance benefits, the results have been devastating for the retirees. This is
particularly true for those retirees and their spouses and dependents who are not
yet eligible for Medicare and, hence, are left without any health insurance
protection whatsoever. Many retirees cannot replace the lost health insurance

-8-

benefits. They are considered "uninsurable" by private insurance companies
because of their age or physical condition. And even where the retirees are able to
obtain new coverage, the cost of individual health insurance policies is usually
exorbitant.

Cutbacks in retiree health insurance benefits are particularly cruel because
retirement decisions are often predicated, in part, on the promise of continued
health insurance coverage for the duration of the retirees' lives. Thus, the cutbacks
undermine the legitimate expectations of the retirees. Usually it is too late for the
retirees to recoup this type of loss. They are too old to get a new job or start a new
career. They are stuck with their hopes dashed, their standard of living during
retirement drastically diminished by the cutbacks in their health benefits.

The sad truth is that the various attempts to cut back on coverage have done
nothing to contain the increases in health care costs. They have only served to
shift the burden of health care costs to employees. Meanwhile, the underlying
causes of health care inflation ~ a fee for service system for reimbursing health
care providers and provider-driven over utilization of services ~ continue to
plague us.

The Bush Administration, rather than dealing effectively with the
inadequacies of the existing health care non-system, appears to be intent on
pursuing the fanciful "solutions" cherished by the Reagan Administration. These
"solutions" include taxation of benefits, means testing, caps on government
spending for existing programs, managed care for Medicaid recipients, and
encouraging IRA withdrawals to pay for current health care costs. Relying
mistakenly on cost-shifting to reduce demand, these proposals would only

-9-

aggravate existing problems and further reduce access to health services. The
UAW believes that curing the problems of the system will not happen merely by
revisiting pious old prescriptions or invoking an imagined "competitive, free
market" for health care.

The UAW has represented workers in Canada for many years and has come
to see the many advantages of their national health care program. The Canadian
system, which is based on a federal-provincial partnership, provides
comprehensive health insurance coverage to all citizens in a cost effective manner.

The UAW is firmly convinced that a Canadian style single payer, social
insurance program represents the best means of achieving all the goals of national
health care reform.

First, by guaranteeing universal access to health care for all Americans, this
approach would serve to improve the health status of Americans. Universal access
to a basic package of health insurance benefits would assure that all citizens have
access to adequate health care services. Individuals would no longer have to fear
that they may lose their health care simply because they are laid off, change jobs,
or their employer goes out of business. Access to health care would be a basic
right, irrespective of health status, employment or income.

Second, by establishing a single government payer, this approach would
achieve substantial administrative savings. The waste and efficiency associated
with the existing multitude of private insurance carriers could be avoided.
Estimates of these savings range from 30 to 100 billion dollars. The General
Accounting Office recently issued a report which estimated that a Canadian style

-10-

single payer system would save about 67 billion dollars ~ enough to pay for the
cost of extending health insurance coverage to the 37 million uninsured.

Third, by establishing a uniform all payers system for reimbursing health
care providers, this approach would eliminate cost shifting between public and
private payers. Private employers would no longer have to indirectiy subsidize our
public health care programs.

Fourth, and perhaps most importantly, by establishing a mandatory,
enforceable budgeting process, this type of approach would guarantee that health
care spending would be contained within certain limits. The budgeting process
would involve all of the players ~ providers, consumers, and the government ~ in
determining what the reimbursement rates should be for various types of services
and what the aggregate level of expenditures should be. All parties would then be
required to live within the agreed upon budgets. Our nation ateady utilizes a
budgeting progress to determine how we allocate our resources for national
defense, infrastructure, and every other social good or service. It is time we
adopted the same approach with respect to the delivery of health care services.

So-called voluntary goals or targets are no substitute for mandatory,
enforceable budgets. Unless all parties are required to live within the agreed upon
budgets, we will never achieve the discipline needed to contain rising costs.

The UAW also believes that the budgeting process should apply to capital
expenditures, as well as payments to physicians and hospitals. Capital budgeting
should encompass expenditures for expensive new technology, in addition to
investments in new buildings. Only through this type of mechanism can we hope

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to eliminate excess capacity and over-reliance on state-of-the-art technology, and
begin to establish priorities for the allocation of our health care resources.

We also believe that any budgeting process should retain incentives for the
development of managed care delivery systems. It is important that we continue to
build on our positive experiences with managed care and encourage the adoption
of preventative and holistic approaches to medical care.

Fifth, a single payer approach can make significant strides towards
improving the quality of health care in this country. In particular, under a single
payer system, outcomes research findings can more easily be fed back into the
system in a broad-based effort towards continuous quality improvement. This, in
turn, can help reduce costs by eliminating much of the unnecessary and
inappropriate medical treatments which are currently being provided to patients.
Throughout the reform process, improving the quality of care that Americans
receive must remain a top priority. As the twin crises of runaway inflation and
lack of access to health care in the health care system continue to worsen, the
quality of care received by millions of Americans remains suspect.

Recent studies have shown that ten to thirty percent of selected medical
procedures are performed inappropriately or unnecessarily. And gross indications
of health status, such as infant mortality and life expectancy, indicate that the
quality of health care is lower in the United States than in many other
industrialized countries.

The UAW believes that outcomes research findings are critical to correcting
these problems. The key to improving and ensuring quality of care is the

collection and study of data for the purpose of determining optimum treatments for
optimum outcomes. Data analysis should take place at the national level, to
promote a further understanding of issues such as regional practice patterns and
the steps toward elimination of unnecessary and harmful treatments which are
currendy being provided to patients.

Sixth, a single payer approach represents the best means of assuring that the
costs of providing health care are distributed in an equitable and progressive
manner. This type of approach would eliminate cost shifting between employers,
as well as the shifting of uncompensated care costs. A "level playing field" would
be established between all employers, regardless of the health status, age, or
composition of their work force. And progressive taxes on corporations and
wealthy individuals can easily be used to help finance this type of program.

Mr. Chairman, the health care system in the United States must be
fundamentally reformed. Every industrialized nation, with the exception of the
United States and South Africa, has some form of a universal, national health
security program. This is not a goal attainable only through the sacrifices of our
personal freedoms and liberties. When the ideological smoke screens are stripped
away, we know that individuals in Canada, Great Britain, Sweden, West Germany,
Italy, France, and other free societies are guaranteed basic health care protection
by law. It is time for the United States to join the rest of the world in assuring this
basic protection to all Americans.

Again, Mr. Chairman, the UAW commends you for your leadership in tiie
struggle for a fair and equitable health care system. We appreciate this
opportunity to express our views on this critical subject and look forward to
working with you and the other members of this Committee as you struggle with

these difficult issues. Thank you.

Mr. DiNGELL. Mr. Hirschland and Garrison, the committee
thanks you for your very valuable help and your statements in con-
sideration of the matters we have before us.

The Chair will recognize first my good friend from Colorado, Mr.
Schaefer, who has come a long way at substantial inconvenience to
himself to be with us here today.

Mr. Schaefer. I again thank the Chair, and am glad to be sur-
rounded by such able members of the Michigan Delegation today. I
say that because in the State of Colorado, some 4 years ago, we
were faced with tremendous unemployment problems, industry
losses, and a lot of the same industrial situations you are in today.
We had these problems. We are slowly trying to come back, but we
want to try to make sure the same not happen in the other States,
if at all possible.

Last spring, the chairman led a delegation to Detroit of which I
was a part — and I thank you for the great lunch we had — and it
was very informative.

I would like to ask this question: Health care benefits have
become an increasing part of collective bargaining. Are we getting
increased wages or additional health care benefits?

Mr. Garrison. Let me try first. I am headed for your great State
this morning when I leave here.

Mr. Schaefer. Spend a lot of money.

Mr. Garrison. Going out and watch one of the next Presidents of
the United States-to-be. It is becoming one of the major issues in
collective bargaining for every union. When they go to the bargain-
ing table, health care sits front and center. The last round of nego-
tiations with communication members, it was the health care that
created the strike they had at Bell Telephone. Everywhere we look,
it is health care.

Mr. Hirschland. I don't see people negotiating to improve health
care benefits. I haven't seen that in the last 13 years. What I see is
people trying to hold on to the health care benefits they have and
if the cost of health care benefits becomes an issue, to the extent
changes are made, they are in the other direction.

Mr. Schaefer. In other words, you are seeing more of a bargain-
ing point to get additional or to keep your health care rather than
the wage issue.

Mr. Hirschland. Right. Really, people would like to improve
their benefits. That is not the direction things have gone.

Mr. Schaefer. Now, you both mentioned national health care. I
have had some problems with that in the past because I feel that
there is a possibility to deteriorate the quality of health care if we
go in that direction. Would you care to comment on that? Is that a
concern?

Mr. Garrison. We are the only industrial nation in the world
except South Africa that doesn't have some form of national health
insurance. Our competitors, our major competitors on trade, have
some form of national health insurance.

You know, these countries, they are not complaining in Canada
about quality of care. They are not complaining in Germany or
Japan. All over the world, they have adequate health care coverage
for the national system. I don't see why we can't have one in this
country.

Mr. HiRSCHLAND. Let me add to that. If you look at traditional
measures, very gross measures of quality, two things you might
look at are infant mortality and life expectancy. Many countries of
the world have higher levels than we do.

Second thing, you talk about quality of care, it is very hard to
measure quality of care, because we have so many different provid-
ers. One of the things a national system will allow us to do is have
a uniform way of looking at quality.

Medicare has recently taken some important steps to doing that,
but Medicare doesn't represent all the health care in this country;
far from it.

Mr. ScHAEFER. I know we have tremendous problems. We in Con-
gress passed a catastrophic bill sometime back, and turned around
and repealed it. The Members of Congress are branded with that
and they don't want to jump into a new program too fast without
making sure it is going to work. That is why I ask these questions,
because something we don't want to see happen is less quality in
care.

Mr. HiRSCHLAND. In our current system, we have people who
don't have care and, clearly, their quality of care is virtually non-
existent. We have people having a very difficult time getting access
to care. We have problems because we are reimbursing inadequate-
ly; providers aren't providing everything they should.

We have a lot of quality of care problems in our current system.
If we have uniform sets of benefits across the Nation, where we
didn't have different tiers, that would be a good step towards
making sure we improved our quality of care.

Mr. Garrison. Mr. Schaefer, rushing into it? My God, the chair-
man's dad introduced a bill when Franklin Roosevelt was Presi-
dent. I don't know that we are rushing into it.

Mr. Schaefer. I understand that and I understand it has been
around for a long, long time. All I am saying to you is that a lot of
members, because of the catastrophic health care problem, are a
little bit worried about trying to come out with a novel approach
that does not work.

That is all I am saying. It is one of those things, almost like
banking and the S&L's. We are afraid to go into banking reform
unless we know exactly what is going to happen. We don't want
this to repeat itself.

One other question, Mr. Chairman. What kind of choices are
being made by the workers? Must they sacrifice protection for
themselves, long term, for the health care? If we were going to na-
tionalized care, would we also include long-term health care, as
well as dealing with the immediate problems of your workers
today?

Mr. Garrison. Well, that is why the labor movement in this
country supports a comprehensive, you know, program that will
cover everybody, you know, from cradle to grave.

Mr. Schaefer. Costs are tremendous.

Mr. HiRSCHLAND. That is certainly true. One of the problems we
have in costs right now, in addition to having administrative sys-
tems which are extremely expensive and not productive, we can't
budget health care costs right now. If we had a national system, we

could talk about what we are going to spend on national health
care.

Mr. ScHAEFER. I appreciate the gentlemen's answers. These are
questions we are concerned with.

Mr. DiNGELL. The Chair recognizes now the gentleman from
Michigan, Mr. Upton.

Mr. Upton. Thank you, Mr. Chairman. How would you charac-
terize the quality of health care under the plans you have negotiat-
ed?

Mr. Garrison. Again, each union has different coverage, depend-
ing on their contract. And even though the UAW is mostly a home
union, but even within that union, it depends on which company
you are negotiating with. It is not a uniform health care coverage
throughout the labor union or any one union. In the auto industry,
it is probably one of the best packages you can get.

Mr. Upton. I want to hear from you. What specific steps have
you taken to control the rising costs of health care? Do you have
special programs for smoking; or weight loss? How do you deal
with preventive care?

Mr. Garrison. Let me, Mr. Upton, reply. For instance, at Kel-
logg, the grain millers union in Battle Creek — that is not in your
District, but there they have negotiated the kind of things you are
talking about. They have a health care system there. They have
got a wellness center on site for the workers.

Mr. Upton. They have Raisin Bran.

Mr. Garrison. They have Raisin Bran. But again, there was ne-
gotiating between the union and management to have a wellness
program to cut down on health care dollars, and it seems they have
worked.

Mr. Upton. Are you seeing that type of program pretty much
across the board?

Mr. Garrison. I think you are seeing it more and more dis-
cussed. I am also a board member of Blu3 Cross-Blue Shield.

Mr. HiRSCHLAND. I think there is a lot of use now of wellness pro-
grams. When you are describing problems where you try to keep
people well by improving diet, getting blood pressure under control,
weight loss, smoking. We see that in the employment system now
and the programs have a lot of promise.

The impact of those tends to be long-term, but we have certainly
encouraged them. We have a lot of those programs. They tend to
work best when they are developed locally. We have seen it at
Chrysler, Ford, and General Motors. A lot of the smaller units now.

That has really been going on since 197 — late 1970's. At one
time, companies really weren't very interested in that. Only more
recently have they found that is a promising area.

Mr. Upton. Mr. Hirschland, the devastating news that came out
this week with regard to closing plants in Flint, Willow Run, a
number of others, what is going to happen under contracts you all
have with those folks that will be laid off? What type of safety net
may be in those programs — what specifically may be happening to
those families?

Mr. Hirschland. I am not familiar enough with the General
Motors contract to tell you what those people might do, because
they have rights to hopefully move to some other plants and things

58-688 0-92-2

like that. We do have extended health care coverage for lay off,
particularly for longer service employees.

Mr. Upton. Do you know if those families will be eligible for
Medicaid?

Mr. HiRSCHLAND. You probably know the rules better than I do,
but there is an income test and means test. Those people will not
initially be eligible for Medicaid. They will have employer continu-
ation coverage for a substantial period of time.

Mr. DiNGELL. Will the gentleman yield? On the question of eligi-
bility, the probability is these people will be covered with contin-
ued benefits from GM through the duration of the contract. They
would not meet the means test or the property owners test, because
most of these factory workers are good, stable people who own
their own homes.

Mr. HiRSCHLAND. I think one of the things that happens at the
point when somebody comes for Medicaid financially, every bad
thing that can happen to them has happened. Particularly when
you look at the coverage levels of people that are clearly below the
poverty level.

Mr. Upton. In closing — I know my time is about ready to expire
here. I am a little concerned about the Canadian health plan. I rep-
resent the other side of the State, southwestern corner, central
southern part, and as I have examined the Canadian health
system, I see a lack of choice of physicians, which I am not sure in
many cases people here would want to see; I also see long waiting
lists for important procedures, like bypasses.

Rural areas — it may work better in urban areas. I represent a
relatively rural District. We have seen the closing of many health
facilities.

Mr. HiRSCHLAND. I guess I have a different opinion than you do.
Congressman. In terms of choice, my understanding in Canada,
there is choice of physicians. And one of the problems that we
have — if it is not in your District, it is fortunate. In many rural
areas, there is lack of access in this country. It is less true in
Canada than it is here. There are many parts of the country where
it is very hard to get access to health care and health care provid-
ers, because in rural areas, people like to practice less.

You take a look at where you find physicians, the concentration
for physicians per population and you compare rural areas to
urban areas and suburban areas. In rural areas, that coverage is
worse.

Mr. Upton. In regard to heart surgeons, there is one in Canada
for every 2.1 million Canadians; we have one for every 304,000
Americans. MRFs, we have more in the State of Washington than
in Canada.

Mr. Garrison. Mr. Upton, let me ask. You talk about choice of
doctors. Ask Congressman Conyers what choice the inner city
people have; there is no choice for the poor in this country or the
people who are unemployed and can't afford to go shopping for doc-
tors. There is no choice. At least in Canada you can go see a doctor.
A lot of people in this country don't have the ability to see a
doctor.

Mr. HiRSCHLAND. Let me add to that. When you talk about MRI's
and number of heart surgeons for the population, let me identify

some of the problems we have. We have many more MRI's than we
need. We are paying for those because that is a capital expendi-
ture.

People start running the MRFs whether they are necessary or
not in order to be able to recover their capital costs. Somebody has
to pay for that.

As far as heart surgeons is concerned, there has been, appropri-
ately so, more of an emphasis on primary care in Canada than
there has been here. We have been oriented towards specialists be-
cause of our reimbursement system. What the exact numbers are, I
don't know. I do know there is more of an emphasis on primary
care physicians in Canada than here, and that is appropriate.

Mr. Upton. Do you think that — there are employees that have a
contract — decent contract with health benefits, would they rather
give that up and change that for the Canadian system? Do you
think the quality of care under the Canadian system will be better?

Mr. HiRSCHLAND. I believe our members understand how fragile
the health care coverage they have is. They recognize it is employ-
ment-based. They recognize their employers in many cases are in
fragile situations.

Unfortunately, in my 15 years *with UAW, I have been in a place
where I went in with employers who had very good health care
benefits; unfortunately, the company went out of business or was
sold, and 1 or 2 years later, these people had no health care cover-
age. They understand how fragile that is. I think our membership
is very supportive of a national health care program.

Mr. Upton. Do you think they would give up the specific pro-
gram they might have under the existing contract for a Canadian
type system?

Mr. HiRSCHLAND. We represent Canadian workers in the UAW
and still represent some. The workers who we represented in
Canada seemed very well-satisfied with the system they had there
and, if anything, more satisfied than the workers in the United
States.

Mr. Upton. Mr. Garrison.

Mr. Garrison. I was just going to mention what David just men-
tioned. We have done polling in Canada because many of the
unions have membership in Canada, and we find repeatedly the
workers in Canada are more satisfied with their health care cover-
age.

Mr. Upton. I yield back.

Mr. DiNGELL. The time of the gentleman has expired. The Chair
recognizes the other gentleman from Michigan, Mr. Conyers.

Mr. Conyers. Mr. Chairman, thanks — I am not going to ask
many questions, but this is the panel that I really want to express
my appreciation to for starting off this discussion.

When I held my hearings last year, Tom Turner, Treasurer of
AFL-CIO, testified for the Garrison organization, and Ernie
Lofton — Mr. Hirschland was with Ernie Lofton when he testified
for UAW. I think it is very important that they be commended for
the kind of discussion we have generated here today.

The two issues that are on my mind are, first of all, the Canadi-
an experience in terms of how much health insurance cost per car
is being carried there, as opposed to how much the cost of health

insurance for every worker and retiree at UAW is being carried
right across the river here in Detroit, and we know what it is.

Lee lacocca, not only is the labor movement telling us — that is
what you get for mentioning Lee lacocca. When Lee lacocca tells
you what the cost of health insurance is on a Chrysler built in De-
troit as opposed to one being built in Windsor, you know this issue
is now larger than just collective bargaining. The difference is 500
bucks and rising, per car. That means that we are at a serious dis-
advantage in terms of international competition. If either of you
want to enlarge on that, you can.

Mr. HiRSCHLAND. I think you have actually said it all. Congress-
man. We are at a tremendous disadvantage competitively. I would
add to that, we are really not getting any benefit for that.

Mr. CoNYERS. The question to my friend, Frank Garrison, is, first
of all, to thank you and the labor movement for being concerned
about the status of health in America beyond your union borders.
Someone asked us what would the UAW worker want to give up,
not paying premiums in the big plants at all. They are covered in
the collective bargaining agreement.

Owen Beiber answered this question more directly than anyone I
have heard. He said, "My people are committed to national health
insurance, universal coverage, single payer." He said, "Because in
the long run, that is where we are going to end up."

In every collective bargaining agreement, the big sticking point
isn't even wages anymore, it is health benefits. The issue is, how
much are you going to give back? You are never going to gain one
thing more. It is how much are you going to give back because of
the rising administrative costs.

Our current health care system has 1,200 insurance companies
with thousands of policies and the madness that that involves. And
so, when Garrison talks about the problems of people not in the
labor movement, that is illustrative of the national questions here.

Thirty percent of Detroiters are already without a stitch of insur-
ance, and anybody that is kicked out of General Motors has to be
destitute to get Federal assistance. To qualify, you cannot own a
house. They will make you sell your car. You are on the skids
before you can qualify for Medicaid.

I just want to say thank you for advocating on behalf of every-
body that doesn't have a great union job in this city, and there are
more and more people that are in that fix. It is important that we
can come here and talk about them, as well as what is good in
labor.

Mr. Garrison. That is a rich tradition of this movement.

Mr. CoNYERS. I thank you very much, Mr. Chairman.

Mr. DiNGELL. The Chair thanks the gentleman. The chair recog-
nizes now our good friend from Michigan, Mr. Levin.

Mr. Levin. Thank you, Mr. Chairman. Just very briefly, what-
ever plan one favors, the worst plan is the status quo. The hearing
this morning already has captured that. By the way, it isn't always
that Energy and Commerce and Ways and Means are represented
at the same hearing, with Government Operations also. I think
that symbolizes how the pieces are really interrelated here.

The failings in Medicaid spill over into Medicare, into the private
health system, and any approach that doesn't look at all of the
pieces, whatever the conclusion, is going to miss the target.

I close by reminding us in this State, we should need no remind-
er. Our present health system is costing us competitively $1,000 a
car, more or less, here in health insurance in each automobile,
versus $400 to $500 in other countries. Every time a car comes off
an assembly line, it is already $500 behind the competition. Thank
you, Mr. Chairman.

Mr. DiNGELL. The Chair thanks the gentleman. Mr. Garrison and
Mr. Hirschland, your testimony has been very helpful to us. We
thank you for being our lead-off witnesses. It is a pleasure to see
both gentlemen.

We will be working together on this health problem, as you very
well know, as we have in times past. Thank you very much for"
being with us.

The Chair announces that our next panel is one which I think is
going to be of enormous interest to the subcommittee. Mr. Walter
Maher, Director of Federal Relations for the Chrysler Corporation,
and Mr. Patrick Farver, Vice President, Blissfield Manufacturing
Company.

Gentlemen, we thank you both. Mr. Farver has come from very
far away. Your testimony we look forward to with considerable in-
terest.

We are recognizing you first, Mr. Maher. If you will identify
yourself for the purposes of the record, you may proceed.

STATEMENTS OF WALTER B. MAHER, DIRECTOR, FEDERAL RE-
LATIONS, CHRYSLER CORP.; AND PATRICK D. FARVER, VICE
PRESIDENT, BLISSFIELD MANUFACTURING CO.

Mr. Maher. Thank you, Mr. Chairman. My name is Walter
Maher. I am Director of Federal Relations for the Chrysler Corpo-
ration. We appreciate your holding this hearing.

There are a lot of Johnny-come-latelies to this issue. Mr. Chair-
man, you have been at it for a long time, and I think we are get-
ting a lot closer than we were before. I also appreciate the fact that
we have so many members here because I would like to have this
opportunity to share our opinion on the existing health care system
and its impact on the economic and physical health of this country.

The root of this problem is cost. And the critical factor is that
because we lack a health system in this country, a health policy,
we don't have the tools to address a health policy. And, as a result,
the problem grows, and it is crippling our citizens and our economy
in two key ways.

First, and we have already heard a lot about this this morning, it
burdens U.S. manufacturers with enormous costs that are totally
disproportionate to comparable costs borne by our foreign competi-
tors. In the case of my industry, our costs are more than twice
those of German manufacturers and three times those of Japanese
health costs.

But, second, and we don't hear enough about this, this entire
burden, including all health costs, ultimately falls on the back of
the American consumer and American citizens, squeezing too

many out of the system, and squeezing the standard of living of
those fortunate enough to have health insurance, through out-of-
pocket payments, taxes to finance Medicare and Medicaid, higher
prices, lower wages, less job opportunities.

Consider for a moment a very real-life example of how health
costs impact manufacturers. If you assume that health costs in this
country were evenly distributed through the economy, a U.S. busi-
ness, and this is any U.S. business, competing with a Japanese
firm, a U.S. firm offering health benefits would start out with a
131 percent health cost penalty. But you then pile on cost shifting
from the government, and the penalty compared with foreign firms
gets worse.

For example, as you know, Mr. Chairman, Medicaid covers only
40 percent. Medicaid covers only 40 percent of the portion, and
even for those it does cover, it pays doctors and hospitals two-thirds
of their costs. The residue gets shifted to the private sector.

You compare the private sector, and the penalty for foreign
firms gets worse yet. Two-thirds of those without insurance in this
country either have full-time jobs or are dependents of people with
full-time jobs.

So rather than spreading health costs through retail and service
firms which have little foreign competition, we shift costs to manu-
facturers who do, because they are the firms who most often offer
health benefits and whose employees frequently have spouses or
dependents employed in the retail and service sector.

Finally, adding insult to injury, the U.S. health system penalizes
a business for its longevity. The older your workforce, the more
costs you have to bear.

If my country went over to France, Germany, Japan and built a
factory, we hire a local workforce, we pay prevailing wages and
benefits. Our costs would be substantially the same as our French,
German and Japanese competitors and would be identical in
France. Even though our workforce in those countries would be
younger, we would have no retirees in those countries. Why? Be-
cause in those countries businesses pay for health care on a pa3rroll
tax basis.

Conversely, when foreign auto firms come to this country and
offer health plans, they can offer comparable wages and benefit
programs but enjoy a significant health-cost advantage simply be-
cause of employee demographics.

These transplant operations employ a workforce about 12 years
younger on average and are a generation away from beginning to
accumulate numbers of retirees. This gives them a major cost ad-
vantage they have not earned, and it is simply a product of our
health care system.

And the result, as Congressman Conyers pointed out, the differ-
ence, the gap between our spending for health this year and a Jap-
anese firm in Japan will well exceed $500 per car. And, putting
that in perspective, my company's complete costs have exceeded
$500 per car only four times this century.

That is a fact of life. If Americans want to be the best and most
efficient economy in the world, we have to take strides to rid our
economy of these burdensome excesses.

Now, the private sector has been hard at work on this problem
for years. But it is important to note that businesses large and
small are finding out there are clear limits to what they alone can
do in response to this problem, other than managing their benefit
programs as effectively as possible.

Simply put, the best managed care or coordinated care plan in
the world remains exposed to government cost shifting, remains ex-
posed to cost shifting from other employers not offering coverage,
the excesses of our malpractice system, and all of the other ex-
cesses of a system lacking fiscal discipline. However, employers,
who after the government are the second largest payers, find that
they are often in the position to do the same thing that the govern-
ment is doing, and that is shift cost.

Consider for a moment that an employer who wants to remain
an employer has to recover its cost. Accordingly, to get relief from
health cost, employers are adding to prices to the extent the
market permits. They are reducing the rate of wage growth to the
extent the labor market permits. They are increasing deductibles
and co-payments and reducing benefits to the extent the labor mar-
kets permits. They are hiring fewer people, locating jobs offshore.

They also earn less money. And when they do that they pay less
taxes which reduces the funds that State and local and Federal
Governments have available to meet other societal needs. They pay
less dividends which reduces the standard of living of shareholders.
And they have reduced capacity to invest in R&D, training, et
cetera.

All of this falls on the back of John Q. Public who doesn't have
the ability to shift cost. And that leads to them either getting
squeezed out of the health care system or the deterioration of their
standard of living. And a citizenry either squeezed out of the
system or squeezed of disposable income doesn't make for a healthy
society or a vibrant economy. And a sound economy is important to
all businesses who wish to succeed in a global marketplace.

Therefore, Mr. Chairman, we commend you for this hearing. The
businesses of America, large and small, who offer health plans,
need Congress, need the administration to focus on this issue and
take the steps that are necessary to rectify the social and competi-
tive inequities.

Thank you very much.

Mr. DiNGELL. Mr. Maher, that is a very impressive statement.
We thank you.
[Testimony resumes on p. 60.]

[The prepared statement and attachments of Mr. Maher follow:]

STATEMENT OF

Walter B. Maher
Director •> Federal Relations
Chrysler Corporation

I appreciate the opportunity to share with you our views on
the existing health care system and its impact on the nation's
economic and physical health. In particular, I am pleased to
comment on how the current health system is substantially
penalizing U.S. manufacturers engaged in foreign competition, how
it is eroding the standard of living of American citizens, and how
it is contributing in a major way to the continuing recession in
the country.

BACKGROUND

Starting first with basics, it is the inexcusably high cost
of health care in America which is at the source of all our
concerns regarding the plight of the uninsured, the ruinous costs
to federal and state budgets, to businesses and to families, and
the damage to our economy.

If the cost of our health care system was reasonable, by any
rational standard, and the only problem we had was that the poor
did not have access to it, the focus of remedial action would be
much different.

If the cost of our health care system was reasonable, by any
rational standard, and the only problem we had was one of quality,
the focus of remedial action would be much different.

However, the problem here is cost, and like a cancer it
spreads and causes countless other complications, some equally
fatal .

That we have a problem controlling health costs in America
should surprise no one, for it is a direct result of the fact that
this nation, and this nation alone, lacks any sort of process to
control aggregate health spending.

There is overwhelming evidence that health spending in
America is clearly out of control. We spend 43% more per capita
than the second most expensive country (Canada) ; 81% more than
number three (Sweden) . The situation is even worse when we are
compared with Germany and Japan, home of our major international
trade competitors. Were we to consume health services in America
at the same rate they do in those countries, we would have over
$300 billion per year available to redeploy in our economy
(Exhibit 1) . This exceeds our entire defense budget. How would
that be for a "peace dividend!"

Health costs cripple our economy in two key ways. First (and
we hear a lot about this) they burden U.S. manufacturers with
enormous costs totally disproportionate to comparable costs borne
by our foreign competitors. In the case of autos, our costs are
more than twice those of German manufacturers and three times those
of the Japanese. Second (and we do not hear enough about this) all

health costs ultimately fall on the back of the American consumer,
through the cost of copayments, deductibles and out-of-pocket
payments; through taxes to finance Medicare, Medicaid and other
pxiblicly financed programs, including health benefits for public
employees; through higher prices; and through lower wages and less
job opportunities. Consumers with less disposable income do not
make for a dynamic economy.

QUADRUPLE WHAMMY FOR MATURE FIRMS;

Consider the impact health related expenses have on
manufacturers, in general, and my industry in particular:

If health costs were evenly distributed throughout the
economy, a U.S. business competing with a Japanese firm would
start out with a 131% health cost penalty (Exhibit 1) . I
emphasize, this is a penalty any business offering health
benefits bears, if they encounter competition from Japan or
any other foreign nation.

Pile on cost shifting from the government, and the penalty
compared with foreign firms gets worse. Example: Medicaid
covers only 40% of the poor, and even for those it covers it
pays doctors and hospitals only about 2/3 of their costs.
(See attached Wall Street Journal article.)

- 3 -

Pile on cost shifting from the private sector, and the penalty
compared with foreign firms gets worse yet. Example: 2/3 of
the uninsured have full time jobs or are dependents of people
with jobs (Exhibit 2) . Rather than spreading health costs
through retail and service firms, which have little or no
foreign competition, we shift costs to manufacturers, who do
face brutal foreign competition, because they are the firms
who most often do offer health benefits, and whose employees
frequently have spouses or dependents employed in the retail
and service sectors.

Note: A recent report on Employer Cost
Shifting Expenditures prepared for the
National Association of Manufacturers
by Lewin/ICF revealed that 28% of U.S.
manufacturers ' health costs were
accounted for by cost shifting from
government and other employers.

Adding insult to injury, the U.S. health system penalizes a
business for its longevity. The older your workforce, the
more retirees you have, the higher your costs. Example: If
Chrysler built a plant in France, Germany or Japan, and paid
its workers the same wages as established French, German or
Japanese manufacturers did, its health costs would be
substantially similar (and identical in France) to those of
its competitors, even though the Chrysler workforce would
undoubtedly be younger, with no retirees. Why: because in
those countries business pays for health care on a payroll

- 4 -

tax basis. Conversely, when foreign firms come to our country
and open plants, they can offer comparable wage and benefit
programs, but enjoy a significant health cost advantage,
simply because of employee demographics. These "transplant"
operations employ a workforce about 12 years younger on
average, and are a generation away from beginning to
accumulate numbers of retirees. That gives them a major cost
advantage they have not earned; it is simply a product of our
health care system (Exhibit 3) .

THE RESULT FOR CHRYSLER; The difference between our spending for
health this year and a Japanese firm will well exceed $500
per car. Putting that in perspective, Chrysler's total
profits have exceeded $500 per car only 4 times this century!

WHAT BUSINESS CAN DO

The private sector has been hard at work on the health cost
problem for years. In mid-1981, Chrysler established America's
first Board of Directors • -level committee devoted exclusively to
analyzing Chrysler's health care cost problem and searching for
solutions. Since that time, a substantial number of cost
management initiatives have been adopted and even more actions are
planned. We have a significant percentage of employees enrolled
in HMOs, PPOs, Exclusive Provider Organizations and various other
"managed care" programs. Despite these actions, Chrysler has seen

- 5 -

its per capita cost of providing health coverage to employees and
retirees increase at an average annual rate of about 8 percent
since 1981. While this was substantially better than the average
business' experience, it nevertheless represented a rate of
increase which exceeded both CPI and GNP growth.

Businesses are finding there are clear limits to what they
alone can do in response to this problem, other than managing their
benefit programs as effectively as possible. Simply put: the best
managed health care plam remains exposed to government cost
shifting, to cost shifting from employers not offering coverage,
to the excesses of our malpractice system and all of the other
excesses spawned by a system lacking fiscal discipline.

Sadly, however, because we do not have a health policy in this
country, not to mention a system with fiscal discipline, we lack
coordination between public and private sector health plans. As
a result, government, the single largest payer, has the opportunity
to control its spending by using its legislative and regulatory
powers to (1) define Medicaid eligibility in ways which lead to
millions of Americans being denied access to appropriate health
services at the appropriate time and at the appropriate site, (2)
pay physicians and hospitals less than fair fees for providing care
to the poor and, in some cases, the elderly, and (3) defining the
Medicare benefits package in a way which causes substantially all
seniors having the resources to do so to have to purchase a Medigap

- 6 -

insurance policy thereby generating substantial confusion,
administrative hassle and expense for seniors as well as for
providers. In one way or another all of these actions lead to
costs being shifted to private sector payers.

Employers, the second largest payer, are in the position to
do the same thing . . . shift costs. Certainly many employers, and
most large employers, try their best to manage their health
benefits programs. However, consider for a moment that an
employer, who wishes to remain an employer, must recover its costs.
Accordingly, to get relief from health costs employers:

Add to consumer prices to the extent the market permits.

Reduce the rate of wage growth to the extent the labor market
permits.

Increase deductibles and copayments or reduce benefits to the
extent the labor market permits.

Hire fewer people.

Locate jobs off-shore.

They also:

- 7 -

Earn less profits.

Pay less taxes, which reduces funds available for other
societal needs.

Pay less dividends. ,

Have reduced capacity to invest in R&D, training, etc.

All of this impacts individual citizens. It is clearly
contributing to the growing awareness among Americans that it is
they who ultimately bear the brunt of a health system without
fiscal discipline.

A citizenry squeezed for disposable income coupled with a
weakened business community do not make for a vibrant economy. A
sound American economy is vitally important for those American
businesses who wish to succeed in a global marketplace.

Quite clearly, therefore, if American manufacturers in
general, and American auto manufacturers in particular, are to be
a force in the world economy in the 21st Century, immediate
Congressional action is required to rectify these competitive
penalties. We submit the need for reform of our health care system
has been well established. But what direjction should this reform
take? First, we need to establish some objectives.

- 8 -

Our objectives should be a health system within which the
necessary health care needs of all citizens are met; a system which
consumes resources prudently, balances spending on health with
other national priorities, spreads costs over the broadest possible
base and does not disproportionately impact any segment of the
economy; and a system which exists in a context of continuous
quality improvement.

To accomplish these objectives certain principles are key:

EQUITY AMONG PAYERS

This obviously is only an issue were health system reform to
involve something other than a single-payer system. For example,
some reform proposals envision a public/private partnership
building on today's employment based model for those in the
workplace. Under such a reform policy, tax financed plans would
be available for all the poor and elderly. This would address one
piece of the cost shifting dilemma faced by the private sector.
Further, however, given the government as a "partner", a process
is required to establish fair provider fees for fee-for-services
medicine, and such fees must be applicable to both public and
private sector payers. This would close the cost shifting loop,
at least insofar as the government is concerned.

- 9 -

EnUTTY WITHIN THE ECONOMY

If we are to rely on employer financing in the future, all
employers must participate. This can be done without harming weak
or deterring start-up enterprises and without encumbering
established employers with unreasonable costs and FASB liabilities.
To help accomplish this within a public/private reform strategy,
any employer (or individual) should have the choice of either
purchasing private insurance or paying a tax no greater than its
appropriate share of the cost of a community rated premium
unadjusted for age, thus permitting enrollment in a publicly
financed health plan or a choice of such plans. This will help
assure costs are spread across the broadest possible base in our
economy and that no sector of the economy or no employer bears a
disproportionately large share of expenditures.

The payroll tax provisions of any such reform proposal should
be primarily based on what is an appropriate health tax for a U.S.
employer which needs to remain competitive in world markets. There
is no reason why the sole source of support for such publicly
financed health plans need be payroll taxes and individual
premiums. The much more critical needs are for the program to be
administered efficiently, for health services to be rendered
efficiently, maximizing the use of quality driven organized
delivery systems, and for costs to be distributed fairly throughout
the economy, including support from employers and employees.

- 10 -

Further, with respect to the tax rate, in the interest both
of distributing the cost of health care as broadly as possible
through the economy, and of keeping the costs of American producers
competitive with foreign firms, employees should contribute their
fair share of the cost of the system. In Germany, for example, the
employer and employee share the payroll tax which finances the
health system on a 50/50 basis. In Japan, the comparable employer
share is typically about 60%.

Finally, we should not lose sight of the fact that insurance
companies, certainly large insurers, can play a major role even in
tax financed health plans. Further, this role need not be limited
to purely administrative (as is much of the work of Medicare fiscal
intermediaries) . For example, private insurers play a major role
in the Federal Employees Health Benefit Plan.

FISCAL INTEGRITY

No nation on earth has embarked on a program to provide all
citizens access to health care without concurrently adopting a
strategy to control aggregate national health care spending. Such
management of spending should extend not only to spending for
health services, but spending for capital items and graduate
medical education as well. Control over aggregate expenditures is
critical. Any reform strategy which fails to acknowledge this fact

- 11 -

will without doubt fail to balance health spending with all of our
other societal needs.

Finally, in shaping a health system for the 21st century,
America should strive to become the best. We agree with the recent
GAO report regarding the Canadian health system, that we should not
feel compelled to adopt Canada's or any other nation's health
system, lock, stock and barrel. Many nations, including Canada and
Germany, believe they are spending too much for health care and are
looking to build on their systems by adopting some of the good
elements of the U.S. system. We should do the same. For example,
Canada is exploring the use of organized health care delivery
systems ; but there is no consideration being given by Canada, or
any other country, to dismantling its controls over overall system
costs.

OBSTACLES TO REFORM

Unfortunately, there are many obstacles to systemic reform.
For example, a major problem the health system reform debate must
contend with is how to address the legitimate concerns of the very
small business person. Seventy-five percent of U.S. businesses
employ fewer than ten persons. The majority of them do not
currently offer health coverage. They represent an obstacle to
universal access if employer-based coverage is to be the chosen
financing vehicle.

- 12 -

clearly, a mandate that all small employers buy private
insurance is not the best alternative. Requiring a small,
marginally profitable, low wage paying fira to pay the same amount
for a standardized benefit plan as the largest, most prosperous
corporation would pay is a strategy we do not see employed by any
of our leading foreign trading partners. Understandably,
therefore, when such strategies have been suggested in the past the
small business community opposed them and, more often than not,
urged Congress to take steps to make health insurance more
affordable.

Enter: Pay or Play; a financing strategy designed to ease
the burden on small employers. Given a 7% payroll tax, an employer
paying the minimum wage could enable a worker to choose a quality
health plan by paying a 30 cent per hour payroll tax. Try as we
may, it is not likely we will succeed in driving private insurance
rates down that low! The response by small business organizations
to such a proposal: opposition; opposition even to comprehensive
reform proposals incorporating tough cost containment provisions,
provisions assuring quality, assuring insurance and malpractice
reform, assuring expansion of private sector oriented, competitive
organized delivery systems . . . all because such proposals seek
to have all employers in some way participate in the financing of
this nation's health care system.

- 13 -

If the concerns of these employers cannot be satisfied because
of worries about tieing health coverage in any way to employment
and the resulting impact on hiring and production costs, and as a
result the health system reform needed by all employers, including
many small employers, currently offering coverage is stalemated,
then we believe it would be appropriate to reconsider the tie to
employment and move to a fully publicly financed system.

On a related note, while much attention has been given to the
concerns of small businesses, as noted earlier similar attention
should be accorded the problems of mature companies. Many such
firms have been in business well over 50 years, were
extraordinarily labor intensive (and still are to a lesser extent) ,
and now have many retirees and older workforces reflecting a
combination of the firms' years of existence, continued automation
and foreign competition. With the U.S. increasingly battling in
a global economy, we must revisit rules applicable to U.S. firms
which differ from rules applicable to our major trading partners.
For example, rules or practices relating to the way employers help
finance the provision of health care to employees and to pre-age
65 retirees, and the way businesses must account for such costs.
By focusing all our attention on small businesses we run the risk
of becoming a nation of start-up companies, which gradually over
time lose their markets to foreign owned producers.

- 14 -

There have been other road blocks to reform. Some approach
myth status. For example, "managed care" is often cited as an
alternative to a tax financed system as if they were mutually
exclusive. They are not. The manner in which a society chooses
to deliver health services to citizens and the manner that same
society chooses to finance the delivery of care are distinct
issues. Clearly, "managed care" is a valid cost control strategy
and should be encouraged. Medicare today, or the entire Canadian
system for that matter, could be 100% managed care. The Federal
Employees Health Benefits Plan could be 100% managed care. We must
not, therefore, let "managed care" become the "Voluntary Effort"
of the 90s and stifle the systemic changes that are necessary.
More significantly, however, regardless of how low "the market" can
drive down prices, any governor or Congress, desperate about their
respective deficits, can legislate them lower and shift costs to
an employer in the process.

Another issue currently in vogue is insurance reform, chiefly
with respect to small businesses. Insurance reform is essentially
an insurance policy holder payment equity issue. Huge penalties
currently paid by many small policy holders will simply get spread
among other policy holders. It promises little, if anything, to
control aggregate U.S. health costs or improve the plight of the
uninsured. It is not a bad idea; but we must not delude ourselves
it is a panacea.

- 15 -

Another myth, a classic red herring, is that any control over
aggregate spending will cause citizens to stand in line for
services as health care is rationed. This "your money or your
life" threat is contained not so subtly in many outcries from some
in the provider and insurance communities and is as bogus as it is
unworthy of its proponents. It clearly fails to differentiate
between a budgetary process and the size of the agreed upon budget.
The distinction is important.

First, we should never fear rationing excess; instead we
should seek to eliminate it. More fundamentally, however, having
a "budget" process does not necessarily imply deprivation or
queues. It is simply a function of how much a society chooses to
spend on health or anything else. If you have a large enough
budget for Medicare or any other population, you can get instant
gratification. The key is to create a process where citizens can
choose where they want to spend their resources. The alternative
to a budget is not to have one ... to have no control on
spending. Yet this is what we have today and it is the reason
spending for health is soaking up so much of our nation's
resources, leaving less for other needs.

Having a budget process is important, for in America, like
Canada and elsewhere in the world, citizens mainly pool their money
to buy health care. Here we do it through the tax system and by
purchasing insurance. In Canada its virtually all through the tax

- 16 -

system. In neither country, however, do individual citizens take
out their wallets or checkbooks and pay for health services
rendered in the normal course of events. In both countries, some
other party is usually responsible for all or most of the bill.

Accordingly, given the subject matter of the transaction . . .
life, death, pain and suffering; given the fact citizens pool their
money to pay for it thus destroying any semblance of a market which
could normally be expected to efficiently allocate resources; given
a private sector, entrepreneurial minded, medical-industrial
complex "selling" to such "consumers;" absent some legislated
process to control aggregate expenditures you are assured the
entrepreneurs will win and you will have runaway spending . . .
precisely what we have in America today. In all other fields of
commerce, save health care, entrepreneurs must confront
limits . . . typically measured by the amount of a consumer's
disposable income. This forces choices. In health care today, the
choice is automatic . . . the dollars go to health care regardless
of consumer or payer wishes. Everything else gets rationed! This
must change.

COST OF INACTION

Americans are clearly not aware of the growing costs they
continue to bear as a result of inaction ... as a result of
failing to step up to the need to reform our nation's health care

- 17 -

system. Barring change, we believe health costs will easily exceed
$2 trillion by the year 2000 and absorb over 20% of our nation's
GDP. Health costs are growing far faster than family income, than
business income, than local, state or federal government income
(i.e., tax receipts). The result: a steady reduction in citizens'
standard of living as health care absorbs more and more of our
citizens' and our nation's resources and saps the strength of its
businesses.

For example, in 1991 45% of the growth in our economy was
accounted for by increased health spending.^ Even given the
Administration's forecast for an improved economy in 1992, health
spending this year will consume almost 14% of our GDP and, more
significantly, new spending on health will drain at least 31% of
every single dollar of economic growth.

This is happening without a vote of the people because our
nation lacks a health policy, lacks a system to address the
problem. This is the result of inaction.

While this high percent was undoubtedly aggravated by the
slow growth in our economy, the slow growth was itself caused in
part by the burden health expenditures impose on the economy.

- 18 -

TWO REFORM OPTIONS

To put such a system in place, we see two options. Both would
foster a pluralistic, private-sector-oriented, competitive health
care delivery system. Both would assure access to affordable
health care for all residents. Both would embody a process for the
determinations of fair provider reimbursement, with the result
binding on all f ee-f or-service payers. And both would have a
process to assure control over aggregate health spending.

One option would be financed by building on the current
public/private model. The other would be financed principally
through the tax system. Chrysler could support either model.

With reference to a public-private model, Chrysler has been
working with The National Leadership Coalition for Health Care
Reform. The Coalition is made up of businesses from many varied
industries, unions, health care professionals, and consumers. It
is committed to effective reform of the health care system.

Last month the Coalition announced its proposal, the result
of over eighteen months of effort to forge a consensus. This
comprehensive proposal, which seeks a public-private partnership,
incorporates as one of its features a "pay or play" financing
strategy for those in the workplace.

- 19 -

Chrysler can support The National Leadership Coalition
proposal because it makes clear the need for the public and private
sectors to work in a coordinated fashion; because it makes clear
the need to provide access to affordable health care for all
citizens; because it establishes a process to control aggregate
health costs; because it eliminates cost shifting from the public
to the private sector; because it embraces the concept of community
rating; because it allocates costs equitably across the economy to
help insure a competitive business environment; and because it
underscores the need for prompt action. The Coalition's proposal,
if enacted now, would save over $1.8 trillion by the end of this
decade and over $600 billion per year starting in the year 2000.
It is a proposal which is good for all sectors of this economy and
particularly for the uninsured and for those in the private sector
who have been bearing the brunt of cost shifting. It is a proposal
which is doable and which, ironically, would still find the U.S.
with the highest per capita health costs in the world. So,
clearly, the savings achieved do not come at the expense of the
quality of care available to Americans.

The businesses of America, particularly our manufacturing

base, need this type of health system reform now. The citizens of

America need this type of health system reform now to help them

regain the standard of living they have seen erode over the past

decade. We need to take the hundreds of billions of dollars our

health system wastes each year and make it available for
redeployment in our economy, investing to educate children, to

enhance the skills of our workers, to improve our infrastructure,

and to make our domestic industries more efficient. In short, to

help meet the needs of all citizens and our economy in general.

We pledge to work with you and any others who are willing to

make this type of vision a reality for our country.

EXHIBIT 1

HEALTH SPENDING PER CAPITA

1980 1990

% U.S. % U.S.

$ Higher $ Higher

United States $1,089 - $2,566
Germany $ 704 55% $1,287 99%

Japan $ 522 109% $1,113 131%

Source: Organization for Economic Cooperation
AND Development: Facts and Trends

EXHIBIT 3

Domestic Vs. Transplant
Pensions And i-ieaith Care

Mr. DiNGELL. Mr. Farver, we are appreciative of your being here.
Will you give your full name for the record?

STATEMENT OF PATRICK D. FARVER
Mr. Farver. Thank you, Mr. Chairman.

My name is Patrick Farver, I am vice president of Blissfield
Manufacturing Company in Blissfield, Michigan.

I guess I am here representing the little guy. I do have an open-
ing statement which is a brief summary of my total statement
which I would like to include in the record.

Mr. DiNGELL. Without objection, your full statement will be in-
serted in the record. We recognize you for such comment as you
wish.

Mr. Farver. Thank you, Mr. Chairman. Good morning and
thank you for the opportunity to share my thoughts with you on
the problem of escalating health care costs.

My family's business was started 46 years ago by my grandfa-
ther. I am the third generation in the business and hope to be able
to bring my sons into the business in the future.

One of if not the most frightening things we face as a company is
the uncontrollable rise in the cost of health care insurance. We at
Blissfield Manufacturing Company have always recognized that the
most important and valuable asset is our people. We have many
people that have been with our company 30, 35 and as long as 45
years. We also have many fathers and sons working together in our
facility. We have always taken care of our employees and our
family, if you will, and, in turn, they have taken care of us. That is
why we have been in business 46 years and continue to be a strong,
successful company.

But our ability to take care of our employees and still remain
competitive and profitable is dissolving quickly. The uncontrollable
rise in health care costs have drastically affected our profitability.
We have been forced to put more of the burden on the employee
and in some cases reduce the level of benefits we provide. For the
first time in 46 years we have to consider having our employees
contribute to the cost of health care premiums. The costs have
risen at such a rate that our sales, growth and cost-reduction pro-
grams cannot keep pace with the increases in health care costs. We
still offer a program that is better than most, but our ability to
continue that practice is quickly diminishing.

I strongly feel that companies that take proactive measures to in-
crease the wellness of their employees through education and pre-
vention should be given incentives to continue these practices,
while companies that don't should be penalized. By practicing pre-
vention and maintenance of health care, we take many of the
people out of the already overburdened system.

Health care needs to get back to its roots of being a service to
the people and not a vehicle to generate huge profits for insurance
companies and unscrupulous people that would abuse the system
for their own personal gain.

Thank you, and I would be happy to take any questions to the
best of my ability.

[The prepared statement and attachment of Mr. Farver follows:]

^BB"^""* MANUFACTURING COMPANY

626 Depot St • Biisst.eid M.ch.qan 49228 • Phone 5i7 486 2i2i • FAX 517.486-2128

TESTIMONY
OF

PATRICK D. FARVER
VICE PRESIDENT

BLISSFIELD MFG. CO.

Blissfield Manufacturing Company is a 46 year old family
owned corporation. We employ between 200 to 250 people with all
operations combined. We started out in a 5000 sq. ft. building
in 1946 and now occupy a little over 400,000 sq. ft. The main
focus of Blissfield Mfg. Co. business is the refrigeration,
automotive, off road and construction equipment markets.

Blissfield Mfg. Co. has always believed its most valuable
and important asset was its people. As stated earlier we are a
family business and have tried to treat all of our employees as
we would our family. Blissfield has always and continues to
offer its employees an excellent benefit package including
major medical, optical, dental and prescription drug coverage.
Up until a few years ago the company paid all costs and all
employees had first dollar coverage. Due to escalating costs we
were forced to change the salaried employees benefits to an
80/20 co-pay situation. As you can see from the attached graph
our costs on an average have gone from around $ 500 per year
per employee in 1968 to close to $ 6000 per year per employee
in 1992. The most dramatic changes coming in the last 10 years.
The costs are out of control. How can the small business in
America compete in the world market when they have no control
over these outrageous costs increases. We can go through many
cost reduction programs and implement new methods of
manufacture but there is no way these things will keep pace
with the ever increasing costs of health care. At what point
does the cost of health care surpass the hourly wedges we pay
our people ? Looking at the last ten years it won't be long.
Under the current system I can foresee people working for
benefits and not hourly wedge or salary considerations.

The stress on the working people is also intense. As the
costs of health care keeps sky rocketing peoples attention
turns to worrying about their ability to survive an illness or
injury that may cost them beyond their current coverage.
Productive time and attention to the job at hand is thus
diluted. Also this health care cost problem continues to erode
the working relationship between management and labor. As costs
continue to rise, management has to find ways to control this
escalation .

CONDENSEBS/EVAPORATORS . OIL & TRANSMISSION COOLERS • P E W
BELT DRIVEN REFRIGERATION COMPRESSORS AND UNITS

P E.W STEEL TUBING

58-688 0-92

- 3

In most cases this leads to reduced benefits as well as
increased cost burden to the employees. In some cases the
employer has to turn to different programs for different groups
of employees based on union/non union, salaried, hire dates and
a host of other options. This is hard to administer and also
fosters ill feelings among employees that one group may have
more or better benefits than another.

I think that there is a much larger and more far reaching
problem that the health care issue is a major part of. That is
the question of what is really morally right in our society.
Has the operation of the business become so hardened and a
slave to the almighty dollar that all compassion and
consideration for human casualty is forgotten. If we look at
the overall impact a Business like Blissfield Mfg. Co. has on a
small community such as Blissfield Michigan the overall picture
becomes a bit more complicated than just health care costs. We
currently pay approximately 30% of the taxes and employ many of
the local people both in the factory as well as the office. The
money they make buys homes and local services that also
generate taxes and income to the community. They in turn
support the local retail business who also pay taxes to the
community and so on. The point being that if costs get to the
point that they threaten the existence of the business or the
benefit level has to drop to stay competitive, you may loose
employees. The schools, the retail businesses, the suppliers,
the doctors, lawyers, and every person in a community feel the
after shock of a business closing or cut back in one way or
another. Its a huge domino effect that is felt through the
community .

Now lets consider the effect on those men and women that
work all their lives and build up a pension for retirement.
With the supplemental health care needed in most situations the
cost often exceeds the monthly pension. What are these people
supposed to live on. The costs have gone so high that many opt
not to have any insurance due to the high cost. This is like
Russian roulette. They hope they won't need the insurance but
the probability is that they will. What a way to spend your
"Golden Years" worrying about if you can pay the medical bills.
The stress of the worrying is enough to make them sick.

Somewhere along the line our society has drifted away from
what made our country great. Independent people working
together for the benefit of all. We have become so engulfed in
the money and profits and material gains that we have lost
sight of what is really important for the long run. The focus
has to turn back to people helping people. The government can't
administer the health care system. They can't even deliver the
mail cost effectively so how can they expect to administer and
control the health care system effectively. It is just another
invitation for abuse and corruption. We need to put the
control back at the local level. Let the communities work
together to provide health care to their citizens. Their are
many small communities of excellence that need to be modeled.
Focus on the good that is being done rather than what is always
wrong. If we continually focus on the negative we will continue
to produce negative results. Find the good and focus on what is
right and build from there. We are still the greatest nation on
earth and if we redirect our focus to the things we do right in
the health care system and how to best serve all the people
instead of how to complicate the process and allow huge profits
at the expense of the working people we will find the RIGHT
solution. Prevention, Education and incentives for those that
are contributing to the solution will go a long way to finding
a better way to administer health care in the United States.
Reward those that are finding solutions and penalize those
contributing to the problem.

Mr. DiNGELL. The committee thanks you. We know you have
come a considerable distance.

We also know that you and your company are struggling to
maintain health benefits for your employees. We know how diffi-
cult it is. The communications with staff have indicated to us not
only the difficulty with which you are confronted but the vigorous
way in which you are addressing a difficult problem.

The Chair is going to recognize my colleague, first. Mr. Schaefer.

Mr. Schaefer. I thank the Chair, and I appreciate the opportuni-
ty to get your views on this.

I think this certainly ties into ever5rthing. I am going to direct
my questions more to you, Mr. Farver, and my colleague, because
of time limits here.

We know we have a disadvantage when it comes to the Japanese
in the way that they handle their health care costs and the costs of
their automobiles. Sandy mentioned a few minutes ago that it was
something like a $1,000 per car, depending on the type of car it is.
But you previously described that there is an automatic 131 per-
cent of health care cost penalty for American companies competing
with Japanese firms. Can you elaborate on this?

Mr. Maker. Yes. There is an exhibit to my statement. Congress-
man Schaefer, that gives you the source of that. What that is is
based on the per-capita spending on health care in the United
States, all payers versus per-capita spending on health care in
Japan. The OECD publishes that data for all countries in the
world. And that information was the source of the information re-
garding the comparison with Germany and Canada, et cetera. It is
per-capita health spending. Take all the dollars in the Nation that
are spent on health, divided by the number of people.

Mr. Schaefer. While Congress is translating the dollars and
cents, could you possibly make an automobile?

Mr. Maher. I think as you heard, in fact. Congressman Upton
was at a hearing where a member of the faculty of the University
of Michigan submitted some testimony to the Energy and Com-
merce Committee earlier this month. And on a blend of— it was ac-
tually not just the United States, it was the United States and
Canada, the total health cost component of a North American-built
car, from the Big Three, was about $1,086.

Mr. Schaefer. My colleague was right on the nose, then.

Mr. Maher. That was a University of Michigan study, but they
were working off of data they got from General Motors, Ford,
Chrysler and many parts manufacturers in this country. And in-
cluding United States and Canada.

Mr. Schaefer. Let me ask you the question, taking into consider-
ation that and the benefits our American workers

Mr. Maher. By the way, excuse me, I would like to make it
clear, that was 1990 data. So it is probably worse today.

Mr. Schaefer. You have got to creep up on this microphone —
these Japanese microphones. Just because I am from Colorado
doesn't mean you have to give me the bad mike. You didn't deduct
that from my 5 minutes, Mr. Chairman?

Mr. Dingell. No, I did not.

Mr. Schaefer. What was my question?

All right. In comparison to the quality of care that our American
workers get from your plan, do you have any idea how this would
compare with the quality of care the Japanese get?

Mr. Maker. No. And I think the quality issue is a very impor-
tant issue, because it may be that we don't like the Japanese
health care system, that we would want to improve upon it. But
the policjrmakers, yourselves, that is at least something that has to
be taken into consideration in a global economy.

I heard the question of the last panel. I was involved for 12
years, sitting on the other side of the table from these gentlemen,
both in the United States and Canada, and I never experienced a
situation where in Windsor the employees of our Canadian oper-
ations wanted to waive their coverage and opt for Blue Cross/Blue
Shield. That was never a demand we faced.

Not that the Canadian system is the best system. I, frankly, don't
think it is. But the fact is that nowhere in the world are people
trying to copy our system. And they are doing some things right
around the world. And we shouldn't try to copy anybody's system,
but we should scour the globe and try to pick what is best and in-
corporate it in our system and try to be the best in this country, for
quality and cost.

Mr. ScHAEFER. I always look at the Canadian system — we are
talking about fewer people in Canada versus the United States,
and just incorporating the whole doesn't mean it would totally
work. I am sure parts or portions of it will.

Let me ask you, what has Chrysler been doing to try to control
the health costs in managing the care of their employees?

Mr. Maker. I would like to think. Congressman Schaefer, that
we have probably been as active if not more active than any com-
pany in the United States. We were the first company to have a
board of director's level committee addressing the subject, by in-
cluding both the Chairman of the Board of our company and the
President of the UAW sitting together on this subject. We have
well over 50 percent of our employees enrolled in HMO's, PPO's,
exclusive provider networks. We have kept our rate of cost escala-
tion at around 8 percent for the last 10 years or so, well better
than business in general. I have got to tell you, we have got a very
unuser friendly health plan. Our people have to jump through lots
of hoops to get services.

But we have found that if that is all we do, we are not going to
control our health costs. Because for every dollar we may save, we
may get $1.25 shifted to us as a result of our fragmented system. So
we have to develop some common game plan in this country, every-
body pulling in the same direction, maintaining the same objec-
tives of maintaining quality, but making our country the best in
terms of efficiency and quality.

Mr. Sckaefer. Last April in Colorado I held a health care fair at
which I had hospitals, doctors, businesses, everybody that has any-
thing to do with health care, and there was an interesting com-
ment made by Bill Coors, the President of Coors Brewery, located
there in Colorado. He said that they were contemplating — and they
have a wellness center — they were contemplating saying to their
employees, if you go through this wellness center, you are tested
for your blood pressure and your cholesterol and everything, and

you have a problem, you start working on it, and we will pick up
the total health care costs. If you don't do that and you don't show
an improvement, then the health care cost starts to be reduced by
the company and has to be paid by the employee.

Is this a possibility? Is this being done anywhere?

Mr. Maker. We have similar arrangements for a lot of our em-
ployees in the United States. We are a big believer in prevention,
in screening, in education for employees. And that is a very impor-
tant element of an overall policy for this country and for any indi-
vidual business.

But like a lot of things, like tort reform, it is not the only thing.
But it is a very important thing that has to be addressed.

Mr. ScHAEFER. So, in other words, you think maybe this could be
built into an eventual solution?

Mr. Maker. Yes, I do. But I have got to tell you that going down
that path is filled with hazard, because it is easy to pick on some
things like smoking and alcohol consumption, but mark my words,
you are going to have people come out of the woodwork who tell
you, I want to get the joggers and penalize them because of all the
damage to knee joints and the health costs they are causing. The
skiers who break legs. It will happen. I have heard it.

Mr. ScKAEFER. We have not only breaking legs but a lot more se-
rious things happen in Colorado.

Mr. Chairman, I yield back.

Mr. DiNGELL. The gentleman from Michigan, Mr. Upton.

Mr. Upton. Thank you, Mr. Maher. I appreciated your testimony
earlier this month, and I certainly look forward to today.

Mr. Farver, believe it or not, I have been in Blissfield, and I have
been to your facility, and it is amazing to me to see the costs that
you have shown in your testimony, which is about $500 or so back
in the early 1970's per employee. It is almost $6,000 today.

What is the average cost per employee that Chrysler pays per
employee for a year? It is not even in the neighborhood of $6,000.

Mr. Maker. Well, for older workers. Congressman Upton, with a
family, it certainly could approach that. The cost

Mr. Upton. But that will be the average cost. Some will ap-
proach that.

Mr. Maker. But I am not sure what the average age of your
workforce is. But if you happen to have a workforce that has an
above-average age, and you may be an incredibly fine company in
doing what you do, under the U.S. health system, if you are com-
peting with someone, the luck of the draw, has a younger work-
force, that person has an advantage over you. You don't have that
in foreign countries.

That is one of these policy issues that I think has to be consid-
ered, is that of proper line of demarcation in competition, the age
of a workforce. Are you going to penalize one versus the other?

But you could pay $6,000 for a family for coverage.

Mr. Upton. Is that one of the reasons you have gone up, because
you have been such a good stable business in Blissfield for 46
years?

Mr. Farver. As I mentioned, we do have many employees that
have been with the company 45, 46 years. It is not uncommon to
have 2 and 3 generations working in our company, and they stayed

a long time. We have had a lot of retirees in the last 5 years. The
workforce is shifting and changing to a younger workforce. The av-
erage is probably 45 years old at this point, whereas maybe 5, 10
years ago, it was 50, 55 years old.

But also I think our benefits are far superior to most. On the
union side, it is still first dollar coverage, full hospitalization, opti-
cal, dental, prescription. We take good care of our people.

Mr. Upton. Is your specific plan — do you have a small group
health insurance plan or something in that neighborhood, looking
for a specific break?

Mr. Farver. We have two specific plans. Up until around 5 years
ago we were all under the same plan, total hospitalization. Because
of costs, we had to go to an 80-20 situation for our salaried work-
force. So now we have two distinct plans. For cost savings reasons.
And we are always looking to reduce those costs.

We just went through an exercise, in fact we just wrapped it up
last week, looking at another provider, with some substantial sav-
ings, but unfortunately their numbers went 1 to 99. After 99, you
wouldn't qualify for the plan. Being that we had more than that,
we could not qualify for the plan. We asked them to look at two
specific groups, the retirees as well as the working employees, if
they would consider two plans. They wouldn't touch it.

So we are constantly looking to reduce costs. We are making our
employees aware of what costs they have used on a monthly basis
so they can be aware of it and try to curb abuses.

Mr. Upton. You have a number of facilities, as I recall, around
the country, is that right?

Mr. Farver. We have three facilities active right now, one in
Michigan, two in Indiana. The third in Indiana we closed 2 years
ago and moved back to Michigan, which is a twist for most. Usual-
ly it is going the other way.

Mr. Upton. Have you noticed between States a large difference
or any difference between — your graph, I expect, is for all employ-
ees?

Mr. Farver. That is correct. That is an average. It could be less
depending on single coverage. Obviously, family coverage can run
as high as $60 a month. This is an average. So it could be higher or
lower.

Mr. Upton. I appreciate your attendance this morning. Thank
you,

I yield back.

Mr. DiNGELL. The Chair thanks the gentleman.
The gentleman from Michigan, Mr. Levin?

Mr. Levin. Well, Mr. Maher, I had a chance to be on the plane
this morning, so I don't need to burden you with any questions.

I do think it is a good idea that we hear from a mix of the busi-
ness community, Mr. Chairman, as you are doing. And as we look
at this issue, we look at the needs of smaller business as well as
larger, so that we don't end up providing an answer that simply
shifts the cost from larger business to smaller business. That isn't
going to accomplish very much, if anything. In fact, it may set us
back. So I think the two of you, in a sense, represent the challenge.

Thank you very much.

Mr. DiNGELL. Gentlemen, the Chair once again thanks you for
your helpful assistance. Mr. Schaefer?

Mr. Schaefer. If you will permit me, Mr. Chairman, I would like
to ask one other question of Mr. Maher.

I think the facts show that in other industries throughout the
country, the growth rate is approximately 14 percent. Yours is only
8. That is interesting. What are you doing different?

Mr. Maher. Well, as I mentioned. Congressman Schaefer, I hon-
estly believe we have been at this a lot longer

Mr. Schaefer. You recognize the problem?

Mr. Maher [continuing]. Than other companies, because it has
been a big problem, and also we had a major management change
in our company in the late 1970's. We had the opportunity at that
time to literally scour the operations. In looking for pockets of
problems, this one obviously jumped into very clear visibility. And
have been working on it ever since.

Mr. Schaefer. You were one of the pioneers, in other words, in
recognizing this, and I applaud you for that. Thank you.

Mr. DiNGELL. Gentlemen, I am curious. We have many different
reform plans suggested to repair our system. One is to continue the
current plan. One is to shift to essentially a pay-or-play plan, in
which the employer either offers a given level of benefits or pays a
given level of taxes to provide those services. Or we have a nation-
al health insurance plan with a single payer. That single payer
could have his mechanism of providing services in an array of dif-
ferent fashions.

With regard to the manner in which the country should address
this problem, what is your preference with regard to the mecha-
nism of payment? Should we pay by payroll tax? Should we pay by
some other mechanism? Should we pay from general revenues?
Should we have a specific dedicated tax, a value added tax, or
something of that kind to pay for the costs of these kinds of serv-
ices?

Gentlemen, I am not asking you to speak on behalf of your com-
pany, but just indicate your personal preference. If you can or
desire to, express the views of your companies.

Mr. Maher. Mr. Chairman, we testified on several occasions
that, rather than picking out any particular plan, we think we
have to set up the objectives of what you want a health system to
provide. Those objectives, we believe, should be: (1) coverage for all
citizens; (2) a process to control cost, clear process to control cost;
(3) a process to assure that the cost of the system is spread equita-
bly across the economy so that you don't burden inappropriately
any particular sector; and (4) that you operate in a context of con-
tinuous quality improvement.

Then you say, all right, how do you accomplish this? How do you
finance it? And we see as a company 1 of 2 ways of proceeding.
Both of them would have the common ingredients of having health
care delivery, private-sector oriented, competitive, pluralistic deliv-
ery systems.

But in terms of financing them, you could finance them either by
building on the current employer base model, with public coverage
available for the poor and the elderly, with employers being re-
quired— having two choices, one to offer health coverage to people.

or two, in lieu of that, pay some type of a payroll tax so that they
are contributing in some way to the financing of health care, there-
by enabling people to enroll in some tax-financed system.

But both the public and private sectors operating pursuant to the
common rules, with a budget established for the system, with fees
determined hopefully through some multilateral way and not dic-
tated from Washington. But, once those fees are determined, have
them binding on both the public and private sector to avoid cost
shifting.

The other method of financing would be to finance it through the
tax system. And I want to emphasize there is a huge difference be-
tween having a tax-financed program and a government-run pro-
gram. For example, the Federal Employees Health Benefit Plan
was ironically just written up by Stewart Butler of the Heritage
Foundation as a model plan, as an example of how you can have
competition among plans, and that is fully tax financed.

Mr. DiNGELL. It also goes up at a high rate of speed every year.

Mr. Maker. That is because there is no overall process to control
costs. So my only point is that you can have a tax-financed plan
with lots of choices. I could make an argument that, for example,
for years one of the problems with the Medicare program and a
problem with the Canadian health care system is that it is replete
with choice. You have unfettered choice.

And so the irony is that we hear a lot of discussion now about
organized systems of care and coordinated care, all things that
make a lot of sense in my company's view, but, by the way, the
only way they work is constraining choice. And that is not all bad.
It is not necessary to pick your doctor out of the yellow pages.

We think we can support either type of system, either a tax-fi-
nanced system or one that is built on the employer-based model
action as long as they met those common objectives of cost control,
universal access and quality.

In terms of if you had a tax-financed system, you say, what is the
best tax? There are obviously many ways to do this.

Mr. DiNGELL. What is the best one from the standpoint of com-
petitiveness?

Mr. Maker. My company has long supported some form of either
a business transfer tax or a variant of a value-added tax because of
its ability to disperse costs through the economy. When you consid-
er that the current health — you know, a lot of people say, wait a
minute, that impacts prices. The current health care system is
largely financed by employers, and if anyone doesn't think that is
almost the same thing as a sales tax, they are not a student of this
issue. Businesses, one of the ways they recover their costs is to add
to prices. And that is the same thing as a sales tax.

My sense is that it may not be appropriate to rely exclusively on
one single tax vehicle. But that is one that my company is support-
ing. We are also a member of the National Leadership Coalition for
Health Care Reform, which has supported a comprehensive health
reform strategy, but one which, for people in the workplace, builds
on what you characterize as a pay-or-play model. That obviously
relies to a certain extent on payroll taxes as a way of financing
health care.

And again, that is, in fact, how a lot of health care is financed in
the country today. Because, to the extent that an employer buys
health insurance, that clearly is part of an overall compensation
package and in essence functions somewhat like a payroll tax. I
will just stop there.

Mr. DiNGELL. Mr. Farver, what are your comments, please?

Mr. Farver. I would agree with Mr. Maher on the majority of
his points. I don't think it is one perfect system, obviously. I think
a lot of focus needs to be put on the prevention and maintenance of
health care early on so we don't get these people into the system
early on in years so it becomes costly.

Also, I feel that right now the system is really not fair and equi-
table. Certain people paying, as was given earlier by our gentleman
from UAW, I believe, people that are paying health care costs end
up paying a premium for those that can't pay, doctors charge more,
et cetera.

I think we need to establish clear goals, levels of service and also
cost controls. Like any business, we are required every vear to
reduce our cost from continuous improvement efforts. I don t think
you are seeing that in the health care system. It is a situation
where the costs keep escalating, and nobody is doing anything
about it. You have no control over that. You have to go to the
doctor. You have to go. You have to pay.

It needs to be a more competitive situation. That is where maybe
the public and private partnerships can be formed.

It may even be better to go to more localized. Every community I
know has different needs and different requirements. Maybe
through local networks.

I am not an expert on this by any means, so these are strictly
opinions, but I know in our community we do have good health
care in the community. If we can get into a preventive mode and
get a fair cost throughout the community, so that everybody pays
their fair share, businesses pay their fair share — I think businesses
are overtaxed already as a small business owner, so I don't know
that that is really the way to go.

Mr. DiNGELL. You just raised a point, the fact that business is
overtaxed, and the payroll tax system is one which is particularly
repressive to business from the standpoint of dealing with exports
and foreign competitors, or dealing with importers. Obviously the
union management agreements are becoming extremely costly and
obviously impacting the competitiveness of American firms.

The question is then whether something like a broad-based tax
like a value-added tax is going to be the mechanism that would
deal with our competitive problems compared to foreign competi-
tion and put us in a better position? We are spending $1,000 a car
and more.

Mr. Maher. Mr. Chairman, as I indicated, my company is very
sympathetic to value-added type taxes. But I must add that at least
our major competitors in Germany and Japan are the major fin-
ancers of their country's health care cost, and they happen to fi-
nance it through a payroll tax system. They have the advantage,
however, of having those costs be infinitely less than our cost. And
I also don't know, maybe — I am not sure of this at all — whether
any of those taxes are rebated for exports. I don't believe they are.

I wanted — if I could to sort of reemphasize the point regarding
the difference between government run and tax financed, because
this issue is unfortunately getting too politicized for the importance
that it has to the country. And there is a lot of discussion about
equating a tax finance with some monolith government program.

Notwithstanding the fact, and it is ironical, that the Medicare
program which has a lot of problems still is very popular — and I
doubt there is a lot of people who would introduce bills to repeal
the Medicare program because they found out it was tax fi-
nanced— ^but you can have

I mean. Senator Kerry, for example, has introduced his bill, one
of the several, and while it would have a tax-financed health care
system, it would, in essence, get the Government out of running it.
It would use the Government solely to collect money and then dis-
tribute it and have health care delivery as we have today through
private-sector-oriented delivery systems, all of which had to com-
pete in each State with one publicly run plan. It would be one
public plan in each State. Then everyone else would be eligible to
receive the same payments that the public plan would, and they
would compete.

So if the concern here is that we want to have more competition
in the delivery system, you can have that in a tax-financed system.
The Medicare program could be transferred to that — transformed
to that type of a system.

So we should put our emphasis first on what do we want? What
is the architecture of this product that has to cover everybody? It
absolutely must have the capacity to control cost, and it has to
have some structure to assure that you don't save your costs
through skimping on quality.

Mr. DiNGELL. Mr. Farver, what are your comments?

Mr. Farver. I agree. Quality is the main issue here, and the cost
controls, as I said earlier. It is like any business. You have to
remain competitive. And if you don't have any controls to keep
costs from going up, they will continue to go up.

So I really don't have a lot of comment on it. I really need to
think more on the subject. It is pretty far-reaching.

Mr. DiNGELL. Mr. Maher, you served with considerable distinc-
tion as the co-chairman of the Governor's Task Force on Health
Care. That was created because of the concern of over a million
Michigan residents without insurance. The Task Force warned that
the problems would get more difficult in the 1990's. It is now IV2
years since the Task Force presented the Governor with its conclu-
sions. Can you cite any progress that has been made with regard to
either implementing those recommendations or reducing or elimi-
nating the problems the Task Force identified?

Mr. Maher. Mr. Chairman, I think there has been some progress
in terms of — one of the recommendations of the Task Force was to
develop some grassroots support for the recommendations of the
Task Force for purposes of any legislation that might be required. I
know that through the offices of Michigan State University, that
type of grassroots support building is underway.

However, meeting the health care needs of the unfortunate in
this State is largely dependent on the economy of the State. And
since the — that Task Force concluded its business, the economy of

the State of Michigan has not fared too well, to say the least, which
has made it very difficult to accomplish these objectives.

From the standpoint of the business community's participation
in that Task Force, one of our concerns was the cost-shifting issue
that I mentioned during my remarks. And, unfortunately, that
cost-shifting issue is continuing to exacerbate as more and more of
the general assistance people here in Michigan lose their eligibility
for health care coverage.

That does not immunize them from illness. They still get ill.
When they get sick enough, they get treated in a hospital, and
those costs get passed on to private payers.

So my company is continuing to work — even though the Task
Force is no longer in business, I stay in touch with the people at
Michigan State University and try to do whatever I can to continue
to build grassroots efforts here.

Mr. DiNGELL. Mr. Farver, do you have any comments?

Mr. Farver. No. I think on the overall issue, as long as we can
provide a plan which is fair and equal to everyone, and ultimately
gives everyone health care — I think it is sad when people work all
their life, they retire, and their pension doesn't even cover their
health care premiums. And the worry of whether they are going to
be able to pay their health bills is enough to make them sick. I
think it is a sad state of affairs when people work their whole life
to retire to a better way of living, and it is gone because of health
care costs.

I would be in favor of funding that type of program, as long as
there is some relief to the business, and that we can plan and know
what our costs will be. If we know what the costs will be, at least
we can plan and budget for them and try to remain competitive
that way. The way it is now, we have no idea what it is going to be
this year, next year or in the future. And it is hard to run a busi-
ness that way.

Mr. DiNGELL. Mr. Schaefer, do you have a question of Mr.
Maher?

Mr. Schaefer. Yes. Both Mr. Maher and Mr. Farver.

Looking at the graph you presented, that health care costs are
going up, it seems to create a situation between small business and
big business where people like Chrysler, who have more employees
and are better able to negotiate with insurance companies due to
the numbers, could help hold those costs down. Whereas the small
business — and I came out of the small business world so I under-
stand many of the problems you face, you have to individually,
with — how many employees do you have?

Mr. Farver. 250.

Mr. Schaefer. Still considered a small business — ^but you have to
negotiate individually with a carrier.
Mr. Farver. That is correct.

Mr. Schaefer. Therefore, you do not have the power, so to speak,
and therefore your rates may be not comparable. And, in many
cases — I am not saying this to you two gentlemen — ^but in many
cases the large business blames the small business for rising health
care costs, and the small business says, well, big business, you get
the better deal than I get out there.

From your perspective, the organizations like NFIB or an insur-
ance pool which would buy collectively, is this possible today, or is
it an idea that you could

Mr. Farver. I think it is a very viable option that communities
pool together, possibly, to try to bring those rates down. At least it
will keep them under control.

In our county we have a number of small manufacturing and
family-owned businesses, and I know every one of those has differ-
ent problems, and they are all facing the same thing, and they are
all networking and pulling together. That is one very viable way to
address the problem.

Mr. ScHAEFER. I know back in 1984 or 1985, somewhere in there,
we had this unavailability of insurance for municipalities, fire de-
partments. We were all having tremendous problems on how to
insure ourselves. And therefore the insurance pools were created.

The difference I see in your business is that you are manufactur-
ing widgets, and somebody else is manufacturing some other com-
modity, and the danger point of somebody getting ill in one busi-
ness may be different than the other. Therefore, that would create
a tremendous problem, or you are not talking about CPA's as a
whole or municipalities as a whole. Is there a way of working
around this if we think about this type of thing?

Mr. Farver. I think there is always a way if there is the will,
obviously. But no, it needs to be studied.

I understand what you are saying, the chemical industry versus,
let's say, say small manufacturing industry. There are different
things that can cause problems. But I would think you would need
to look at what the experience rate has been at each one of those
industries, put those together, run the numbers, average them out,
and see what was what.

To try and get an insurance carrier to do that would be another
thing. Maybe the answer is communities start their own insurance
companies, their own groups to administer the plan on a local
basis. Put the power back to the local people to administer, and
also then they would have control over their experience.

Mr. Maker. Congressman Schaefer, on that point, one of the
things — and I don't have the data here in terms of — one of the rea-
sons that our number was 8 percent is that it reflects a certain
amount of cost shifting to employees and retirees. That tends to
impact that number.

The COSE group in Cleveland, that is a very good coalition of
small employers — coalition for something, COSE. I have heard
them as low as IOV2 percent. I have heard 1 percent say 15. But
let's say it is IOV2 percent. The point to remember, though, is that
is still 2 to 3 times CPI, growth in the economy.

And to the extent that we, starting where we are, already so
much more expensive than the rest of the world, and continue our-
selves to let health care grow at two to three times the rate in the
economy, what that is doing is slowly absorbing the resource of this
Nation, reallocating them to other needs, when there is already a
consensus today, whether it is from Dick Darman to the most liber-
al guy around, saying, we are spending too much. We have got to
figure a way. There is no reason in the world why a Nation as wise
as this one is has to spend 43 percent more per capita than the

second most expensive country on earth to meet our Nation's
health needs.

We have got the smarts to do it for less than what we are spend-
ing now. So we should not get ourselves hooked on a system that
aggregates or, again, bet the farm on aggregating small businesses
so they can improve their lot in life to the lot of larger business,
most of whom are griping about health cost.

So this is a broader problem. All of these things make sense, but
they all have to be incorporated in a much more comprehensive
strategy to meet the macro objectives.

Mr. ScHAEFER. One last question, Mr. Maher, and a follow-up on
the chairman's initial question. The Task Force that you were on
created by Governor Milliken and continued by Governor Blan-
chard

Mr. Maher. Governor Blanchard started it.

Mr. Schaefer. Anjrway, are other States doing this type of
thing? And were some of the answers you pulled out here about a
crisis in the State of Michigan, should these be repeated in other
States? Just a comment on that.

Mr. Maher. There have been a number of initiatives. Congress-
man Schaefer, in many States. In fact, I have attended meetings
where the States get together to pool their ideas. The League of
National Governors Association has taken an active interest in
this.

And while on the one hand I am a big believer in local initia-
tives, as an employer, with operations in all States, I shudder to
think that we will have 50 — not to mention maybe northern Cali-
fornia to something different in southern California — different
strategies. That would be very, very complex.

That is not to say that there can't be variations between some
sort of master plan with variants but all sort of generally pulling
in the same objective. We don't need a cookie cutter.

Mr. Schaefer. Are you finding the Michigan problems are re-
peated in Mississippi or Kansas? Are we coming down to the same
basic problem?

Mr. Maher. Yes. First, everybody — sort of the core problem, ev-
erybody confronts the cost problem. Some States are more fortu-
nate than others. Some States have tradition. This State has a tra-
dition, I think, more of a caring tradition. We have a lower overall
uninsured rate in this State than our surrounding States.

It is the best of a bad lot, let's say. This is not — on one end it is
complex, but it is not complex. We don't have a process to control
costs, and therefore we shouldn't be surprised that all 50 States,
notwithstanding the fact they have got a lot of smart people in
them, can't control them.

Mr. Schaefer. Some of the more rural States have a problem.

Mr. Maher. Right. I contrast this with defense. We are spending
5 percent of our GNP on defense; Germany, 2 percent; Japan, 1
percent. Citizens around the country look around the world. They
know their tax dollars support defense. They want real reductions
in defense spending.

Obviously, there is local pockets of interest, understandably. I
don't want my base closed, whatever. Citizens want real defense
spending, and they are going to get it.

Contrast that with health care. You look around the world. We
are 43 percent more than the second most expensive; 14 percent of
our GNP versus 6 in Japan and 8 in Germany. People, the consen-
sus is, want lower cost. Can't do it.

Mr. ScHAEFER. It comes down to cost or quality.

Mr. Maher. But it tells you something that in defense at least
there is a process to get it done. In health care, notwithstanding
the will of the citizens, it can't get done. That tells you you need to
develop a process.

Mr. ScHAEFER. Thank you, sir.

Mr. DiNGELL. Mr. Farver, I was looking at the chart you submit-
ted to us. In 1968, Blissfield spent about $400 or $500 per employee
for health care. Today in 1992, you are projecting your cost just
short of $6,000 per employee. That is about $5,500 more. Is that
right?

Mr. Farver. That is correct.

Mr. DiNGELL. Do you have any projection as to the future level of
cost increases?

Mr. Farver. If they are as they have been historically in the last
10 years, we will look at 10 to 15 percent per year. We will stay in
business, whatever it takes. Once again, it puts the burden on the
employee more so than the employer.

Mr. DiNGELL. I visited the farmers, and as I traveled around talk-
ing to them, one of the things they always brought out is the latest
Blue Cross bill. Do you have in Blissfield an insurance plan?

Mr. Farver. We buy the insurance plan. We are self-insured on
Workmen's Comp.

Mr. DiNGELL. Mr. Maher, ,you are essentially self-insured at
Chrysler?

Mr. Maher. Yes.

Mr. DiNGELL. You use folks like Blue Cross to provide the admin-
istrative services, is that right?
Mr. Maher. Yes.

Mr. DiNGELL. I guess, gentlemen — I note that the United States
has some — some 1,100 — 1,500 different health care plans. I was
over in Canada talking to people at Canadian hospitals, and I was
in this country talking to U.S. hospital people.

One day we visited six, four in the United States, two in Canada.
We asked the U.S. hospitals how many people they had in their
billing offices to deal with billing. They said 50 to 60.

We asked the Canadian hospitals of identical size, 600 beds, how
many they had dealing with billing. They said, "We have between
three and four." Are there efficiencies that can be achieved by re-
ducing the number of plans with which we are blessed or cursed in
this country?

Mr. Maher. No question about it, Mr. Chairman. The physicians
of this country very properly talk about what they call the hassle
factor, and it is not only a large number of insurance companies, it
is the fact they all have their own different rules.

My company, for example, has lots of different rules that we
think make sense to help control costs, but it generates another
rule book that thousands of doctors in southeastern Michigan have
to have. It complicates the back-offs of doctors, of hospitals.

Some physicians, understandably, find it intrudes in their abiUty
to minister the health needs of patients. Not that sound cost con-
trol is not important, but it would be better if — again, there it was
more coordinated, so the physicians and hospitals in this country
could spend the great bulk of their resources meeting health care
needs of people rather than jumping through hoops by all kinds of
thousands of different payers.

Mr. DiNGELL. Those hoops are expensive, are they not? All the
different rules they have to meet and all the different folks they
have filling out forms and all the different forms they have to fill
out for all the different people are enormously costly and wasteful,
are they not?

Mr. Maker. You are correct. I am pleased to say there appears
to be some bipartisan understanding of that issue and work to try
to address it. But it is a huge problem, and I can understand and
sympathize with the physicians and hospitals in this country when
they make the fuss they do about the hassle factor.

Mr. DiNGELL. The ordinary citizens have to confront it, and the
people who pay the bills have to pay the cost of all these people
that contribute nothing.

Mr. Maker. Mr. Chairman, it is too bad what happened to cata-
strophic, because all Congress and the President have to do is look
at the Medicare program. If you were going to get out a clean piece
of paper and write a health policy for the elderly of this country, I
don't think you would write it with the thought in mind that any
person with my means would have to go out and buy another in-
surance policy to cover what your plan didn't cover, and that is
what the seniors of this country have to do.

That adds complexity for them, for their doctors, for their hospi-
tals; confusion for family members that work with older parents in
filling out forms, and deciding who gets what bill. That is a classic
example.

Mr. DiNGELL. Well, this committee, as both Mr. Schaefer and Mr.
Upton can testify, has been very active in looking at fraud, waste,
abuse and mismanagement in the so-called supplemental plans
that we have for senior citizens. And the Congress adopted protec-
tions as a result of this subcommittee's activities.

Gentlemen, you have been here for a long time. We thank you
both for your assistance. We appreciate it. We thank you, both gen-
tlemen, for your assistance.

The Chair announces our next witness will be Representative
David Hollister. David HoUister is the chairman of the Appropria-
tions Subcommittee that deals with matters in the Michigan
House, is an expert who has appeared before this subcommittee on
a number of occasions. His testimony has always been invaluable
and informative.

Representative Hollister, if you will come forward we will be de-
lighted to receive your testimony and hear your comments. Thank
you for being with us. Would you like to identify your associate?

STATEMENT OF HON. DAVID HOLLISTER, A STATE REPRESENTA-
TIVE FROM MICHIGAN, ACCOMPANIED BY WARREN GREGORY,
PROFESSOR, HOUSE FISCAL AGENCY, MI.

Mr. HoLLiSTER. Thank you, Congressman. I am Representative
David Hollister from Lansing, I have served in the legislature 18
years. I chaired the Appropriations Committee on Social Services
for the last 14 years, so I am kind of a masochist.

I have responsibility for the Medicaid budget. I am on the mental
health budget, public health budget and the school aid budget, so I
kind of see the interrelationship between those budgets.

I chair a special committee on the legislature of State, local and
Federal Government, trying to see the interaction between Federal
policy. State policy and local government. It is in that context I
come before you this morning.

I am joined by Warren Gregory, a professor on the staff of the
House Fiscal Agency, and has done a lot of research in this area. I
forgot to fax to you a recent study done by Steven Gold. Steven
Gold is with the Center for Study of the States out of Albany, New
York, and he just published a report called "The States and the
Poor", where he tries to do an analysis on what is going on across
the country in all the States, not just in Michigan. I have a sum-
mary of that I can leave with you. I highly recommend the summa-
ry.

Basically, what he tries to do is summarize why all the States
are in trouble, not just one. You can't go to Michigan and say we
have a bad Governor or legislature. What he talks about is basical-
ly the States are facing two problems:

The first problem is a prolonged recession. When the Nation is in
a recession, Michigan suffers dramatically. While the country is in
a prolonged recession, ther6 is another thing going on that is more
important but less understood. That is, there is a substantial
change in our structural society. Those structural changes are
having a bigger impact than the recession. Even when the reces-
sion is over, Michigan is not going to bounce back. Ohio is not
going to bounce back, Illinois is not going to bounce back.

Let me just highlight for you, if I could, the five structural things
that goal talks about, because they are very essential to what you
are looking at. The first thing is obvious to all of us in all the
States, is the cost of health care. And you are focusing on the
growth of Medicaid and Medicaid over the last decade, since 1980
in Michigan has gone up about 128 percent, so indeed it is one of
the fastest growing parts of the budget.

And we just had our presentation last week that Medicaid is now
53 percent of Michigan's social services budget. Ten years ago it
was 33 percent. So, when you are talking about more money going
to the poor in Michigan, it is going to the physicians of the poor,
clinics of the poor. It is not going to the poor. It is going for health
care, and the grant levels have not kept up, they have been going
down.

So, while Medicaid has been going up 128 percent, we need to
look at other parts of our budget where we spend money on health
care. Medicaid has gone up 128 percent, but if we look at State em-
ployee health care costs that we pay for with our tax dollars in the

same decade, those costs have gone up 269 percent, almost double.
So we are paying double for health care growth of our State em-
ployees.

If you look at our State retiree costs that we also pay out of our
State dollars over the same period of time, since 1980, those costs
have gone up 647 percent. If you look at our teachers, we help fi-
nance the teachers' health care costs and their social security and
retirement. That has gone up 800 percent. Congressmen.

Corrections: When we put a person in prison. If we put them in
prison, we pay four times more and our prison health care costs
have gone up 403 percent. If you put those costs together, Medicaid,
State employees, the teachers, the prisons.

Mr. CoNYERS. Are those correction officials or inmates?

Mr. HoLLiSTER. Inmates. The correction officials are paid for by
State employees. If you put all those together, you have gone from
20 percent of our budget to 26.7 percent. The pie is being squeezed
by health care. And that is true in all the States, not just Michi-
gan. So keep that in mind.

Medicaid is a pauper. Let me say that again, Medicaid is a
pauper compared to the other costs of health care. So that is the
first thing confronting all the States.

The second thing is the changing role of the Federal Govern-
ment. When I came into government 20 years ago, we considered
the Feds a partner and you considered the States a partner, and we
considered the counties a partner, and we were all in partnership
trying to fix things.

Now that has changed. Now we are seen as the enemy. The
States see the Federal Government as part of the problem. Now we
are no longer seen as partners; we are all seen as bandits in this,
seeing who can shaft who. There has been a policy of what I call
the shift and the shaft.

The Feds are shifting responsibilities to the States and cutting
us. We try to maintain it as long as we can, and now we are cut-
ting responsibility and shifting it to local government. If you don't
think that is happening, wander up and down the streets of De-
troit.

What that means to Michigan is—this is true of all the States —
we have lost an amount equal to our entire State budget in Federal
budget cuts in the last decade. For Michigan, that is $11 billion in
cuts. Our entire State budget is $7.6 billion and we have lost $11
billion in budget cuts. Congressmen, those cuts are in employment
training, they are in urban development, they are in education,
they cut across the board. We have seen a changing role in the
Federal Government.

While the government is cutting back payments to government,
and most of those cuts, by the way, were in State and local aid,
they have been mandating new programs, and I have been the big-
gest supporter of the mandates.

Frankly, if it was not for the Federal mandates, Michigan would
not be expanding health care. What we have been seeing, a very
subtle decision to create universal health care for children. We
have been expanding access to women and children, which I be-
lieve in.

At the same time, we have ended health care for 85,000 adults in
this State. So we are kind of singling out one group to get universal
health care for children, and I have supported that and we have
done it through your mandates. At the same time, because of the
budget constraints I just talked about, we had to cut back in other
areas.

One of the key questions we have to deal with as State legisla-
tures is health care. I think there is a consensus that health care is
a right. The next question is, how do we organize it and pay for it?

This problem of the changing role of the Federal Government
from partner to, now, the perceived enemy is fundamental to our
problem. I am here to support the mandates. You will have others
criticize you, but I am not one of them. We have to provide univer-
sality, and now we are doing it for the children, but we have to do
it for all.

The third thing that is happening to the States, the economy is
changing in Michigan and it is changing throughout the country.
Michigan lost 30 percent of its manufacturing jobs, and 80 percent
of those manufacturing jobs had health care.

We have been creating service jobs and our service jobs are up by
33 percent in Michigan; we have created over 400,000 new service
jobs at the same time we were losing those manufacturing jobs.
Unfortunately, most of them have no insurance.

Sixty percent of the new jobs in Michigan, Congressmen, pay
$7,000 a year or less. Sixty percent of new jobs in Michigan pay
$7,000 a year or less, and most have no insurance.

You have got a new phenomenon in this country and it is going
on all over. You can have an intact family, husband and wife work-
ing full-time at a minimum wage job and living below the poverty
level. What happened to the American dream? And they have got
no insurance, and if one of the kids needs a tonsillectomy or any
kind of health care, the family is wiped out, they are right on the
edge.

So we — and this is happening in all the States, not just Michi-
gan. This new service industry, low-paying minimum wage jobs, no
insurance. That is what has created 35 million Americans out
there, the working poor, who have no insurance, and you can't
blame the small business people because they can't afford to pro-
vide it.

Therefore we sit with this new working poor, at-risk family,
trying to maintain the American dream and working full time at a
minimum wage job and falling deeper and deeper in debt. Con-
gressman you had a question, I think?

Mr. CoNYERS. No. I have a number of questions. I wanted to wait
until you conclude.

Mr. HoLLiSTER. I have two other things that are happening to all
the States. It kind of helps understand why we are where we are.
The next thing is a decision in the early eighties to get tough on
crime. We decided not to get smart on crime, but tough on crime.

We started building one new prison 8 weeks ago. In fact, we have
been opening them so fast we cannot afford to hire people and
train them so we have three sitting vacant. We had to hire prison
guards to keep people from breaking into our prisons. That hap-

pened right here in this community. We know who are in prison,
they are our urban poor, uneducated.

I was recently meeting with some health care people. They said
the number one predictor of people in prison, look at their dental
charts. They are all without dental care. It is just a symbol, just
shows you what happens. Prisons have gone from 2 percent of our
budget in 1980 to, 1992, it is 9 percent of our budget, 9 percent.

Congressmen, recently, our director of our local homeless shelter
began advising our homeless people if they needed health care, to
go get arrested in Lansing. If you need health care, go throw a
brick through a window, get arrested. Otherwise, there is no health
care available in this State. That is happening in all the States,
and we need to get smart on crime.

There are other ways to deal with this. The last thing that is
happening in all the States is the growth of tax expenditures. This
is the second fastest growing part of State budgets, tax loopholes,
uncollected taxes. And we deal with them all the time. They are
popular to do. Give this group a break. They are all good ideas, but
they are eroding our tax base at the very time we are having more
and more demands on health care. This is happening to all the
States.

So, you have got two things. States are dealing with a prolonged
recession and a structural problem. Now, that forces them to either
cut back or to raise revenues and Gold's analysis talks about how
the States have cut back. Michigan is one of a couple of States to
try to solve the entire problem by cuts. Even the States that raised
revenues, raised taxes, raised taxes in a regressive way so the taxes i
that were raised hurt the poor the most. I

Now, because we have been in a cutback strategy for 10 years, I
we have not been able to reinvest in our infrastructure. This I
became obvious to me when I drove in from Lansing. i

I drive a little compact car. I almost lost it driving on the ex- j
pressway because of the potholes. We haven't been investing in our i
infrastructure. We haven't been investing in new campuses. We
have been investing in prisons and we have been cutting back ev-
erywhere else. We haven't been able to invest in training and em-
ployment programs. Now our workers are no longer competitive. |

We can't sit here and bash the Japanese, because if Japan owns i
an American plant, they spend $2,700 more than an American
manufacturer in the same plant. They are investing in employ- \
ment and training, and we haven't been able to do that, and most |
of the cuts that have come from the Federal Government have |
been in employment and training.

By the way, the employment and training programs we did have, |
the Governor vetoed, so we lost the Job Corps, the Youth Corps,
Neighborhood Corps, Conservation Corps, all gone. We are in a
pickle. I am here to tell you we have to scramble quickly or it is
going to be a total disaster.

You asked for recommendations. We need a national health in- i
surance program. We need a single payer and we need it now. That 1
is the most efficient, the most effective, and it has got to be a fairly I
rapid solution, or you are just not going to do it.

The President's program is hopelessly inadequate. We need a na- t
tional housing policy. Congressman, I know you are interested in p

housing. There has been an 80-percent cut in housing support. We
need a national family leave policy. We need a national day care
policy.

It was interesting, I was recently in a conversation with one of
my Republican colleagues and he was talking about how we are
overtaxed. I said, well, people are angry. They are angry because
they don't get much back for their taxes.

You look at Europe and Japan, people pay a lot more as a per-
cent of their wages in taxes. They get a national transportation
system. They can jump on whatever, the subway and travel all
over Europe. They get national health insurance. They get day
care. They get family leave. There is a sense they get something
back.

What we have been doing for the last 10 years is cutting back
what little there was so the people are getting angrier and angrier.
It is in our own self-interest to find a way to organize these serv-
ices so middle-class people feel like they have a stake in this gov-
ernment. The government is not the enemy.

If we look at who is beating us around the world, it is those coun-
tries where government and business are seen as allies working to-
gether to solve these problems. And I am urging you, as I did in
Washington recently, to take the lead to bring in these corporate
managers, to bring in the small business that create more jobs
than the Big Three ever thought of.

Warren said the Big Three will never create a new job in this
State again. All we can do is stop the erosion. The people who will
create jobs are small business. We need to bring them in and have
them participate. We have to see ourselves as collaborators in a
joint collective solution, or the Japanese and Germans will beat our
brains out as we quietly whimper away.

The situation is desperate. If you don't think it is desperate, walk
down the cats border. If you come back safe, you will be lucky.

Congressmen, for the first time, Lansing is an affluent city^
Michigan State government. General Motors; and we have families
standing on corners, will work for food. It has never happened
before. Something is fundamentally wrong, and we he have to re-
spond, and we have to care and show them that somebody cares
and somebody is going to offer them hope, or we are in desperate
chance of losing it all.

I was in Europe last year, and so excited about the changes that
were going on, and they brought every communist government in
Europe down without firing a gun because it was a corrupt system
and they wanted to be like us. And we can't offer them health
care, we can't offer them day care, we can't offer them shelter.

I opened last Sunday's Toronto paper, Toronto Star, condemning
what is happening in Michigan. Headline — ^two page feature —
Misery in Michigan. What is going on to our neighbors in the
south? Have we lost our soul? Have we lost the sense of who we
are and what we are about? That seems to be where we are.

I would close by saying I shared with your staffer a statement
issued by the clergy of the State, a group of Bishops came to the
Capitol back in December, first time in 18 years that I have been
there, and they said, this is morally wrong. You got to stop doing
these cuts. You got to offer an alternative. You got to offer people

hope. You got to stop playing on prejudice, stereotypes; let's offer
people hope.

That is why I traveled down here again this morning, and I will
do whatever you asked me to do to try to get this message out that
we are losing time and our people are growing impatient. We are
seeing it in all the elections. People are angry and they are losing
patience. Health care is critical to that, but it is not all of it.

Mr. DiNGELL. Thank you, Mr. HoUister.

Mr. Gregory, any comments?

Mr. Gregory. No, sir.

Mr. DiNGELL. Mr. Schaefer.

Mr. Schaefer. Thank you. Mr. Hollister, I would tend to agree
with you on a number of issues, but we would not agree on others.
Small businesses create the jobs. I was sorry to hear of all the man-
ufacturing jobs that you are losing. These are the ones that do
carry health insurance where the service jobs do not. I understand
that very well.

We have to look at why are we losing manufacturing jobs. I have
my own opinion. It goes way back to 1986, when we passed the tax
bill, that I did not support for a number of reasons. We got rid of
investment tax credits.

When we got rid of investment tax credits, we did not encourage
the businesses, particularly small businesses, to go out and buy
new machinery, expand their businesses and create more jobs, be-
cause we took those tax credits away from them.

I think that is a lot of the reason for what has happened here
today, not only in the State of Michigan, but in Colorado, Kansas
and many other places. I think tax problems have caused a lot of
other problems.

Mr. Hollister. I would take issue to one point. We gave major
tax incentives to General Motors, who just left Michigan for Texas.
We have gone overboard as a State and local communities.

Mr. Schaefer. I am talking about the Federal.

Mr. Hollister. I understand that. What we have to do is target
tax policies. One of the things we are advocating if you are going to
give tax incentive, let's build in training and retraining. You don't
get the tax credit unless you actually create the job and train the
person as part of it.

You can bring in all the equipment you want to. If you have to
import workers from Europe to run them, or from someplace else,
or if you can't hire the staff, people locally to do it, you have got
problems.

Mr. Schaefer. I understand that. You take any small business, a
manufacturing business and you say to them, in order to expand, if
you would be willing to expand you are going to create new jobs,
which would include carrying the health benefits, et cetera, which
we want to see. But in order to do that, we will give you a 7 or 10
percent tax credit on any new manufacturing machinery you bring
in.

We combine all this together and, of course, you would have to
have a retraining program, or whatever, because you want the
local people to get these jobs. I just think that was a big mistake
we made, and I think this is reflective of it. I think that issue alone

could certainly be beneficial to holding and expanding manufactur-
ing jobs.

Mr. HoLUSTER. There was a survey of small businesses in Michi-
gan. Eighty percent report the people they hired lacked the skills
to do the job, and they had no money and no training program,
where at least the bigger companies had some capacity to do thdt.
It was minimal. It wasn't anything compared to what European
and Japanese managers bring with them. Training and retraining
is a critical part.

Mr. ScHAEFER. I understand, but that could all be tied in.

Mr. HoLLiSTER. What I am suggesting, when we do it, be very
precise and not give broad ones. We learned very well the broad
breaks don't work.

Mr. ScHAEFER. Thank you.

Mr. DiNGELL. The Chair thanks the gentleman. The gentleman
from Michigan, Mr. Upton.

Mr. Upton. Thank you, Mr. Chairman. I, too, agree that our tax
policy is something where we really have to change our emphasis,
to blow up the health care system we have today and really begin
anew.

One of the concerns I have had, Mr. Hollister, and I don't re-
member if we discussed it when you appeared before the committee
last time, is our joint concern for those 35 million Americans with-
out insurance, 1 million in Michigan, many more certainly unin-
sured.

The interesting fact I discovered, two-thirds of those uninsured
have someone in their family that works. The big companies,
Chrysler was here, and a little earlier, the GM's, 92 percent of
those firms employing between 50 and 100 people offer health in-
surance. The small businesses with less than 25 employees, only 42
percent was the number that offered health insurance.

For many of them, it is a matter of fairness. The large companies
are able to deduct 100 percent of their costs. The self-employed,
particularly farmers in my neck of the woods, the small folks are
able to only deduct 25 percent of their health insurance costs.

One of the things I have advocated is to bring that up to 100 per-
cent right off the bat, so we can deal with many of the problems
that we have in the private sector with providing adequate health
insurance. The question I have for you — it is too bad Vernon Smith
is not on the same panel. One of the things he mentions in his tes-
timony is Medicaid expenditures are breaking the bank.

In 1985 here in Michigan, the State budget was $1.5 billion. In
1991, $3 billion; from 9 percent of the budget to 14 percent of the
budget. It is a big increase, yet our social safety net for many folks
in Michigan is perhaps not as good as it was before. What can we
do?

Mr. Hollister. Well, I

Mr. Upton. Why haven't we been able

Mr. Hollister. I would agree it is one of the fastest parts of the
budget. It is because the way we organize the legislature and the
way we organize Congress is fragmented, and it is hard to look at
the whole system. I want to look at State employee health care
costs.

The State is an employer. They have direct control over that as
well. They are a purchaser of Medicaid. They use their dollar to
purchase services. The health care for State employees has doubled
that of Medicaid.

While Vernon is going to be here and talk about Medicaid and
the struggle we have had, over that decade we have made 57
changes in policy with Medicaid. We did everything imaginable.
We tried everything. We went to managed care. We did second sur-
gical opinions. We stopped weekend admissions. It goes on and on
and on.

We haven't initiated any cost containment for State employees,
State retirees, school teachers, and those costs are going up be-
tween 6 and 800 percent in that same decade. We come at it singu-
larly against the poor.

For the same — the State purchases medical care for State em-
ployees, State teachers and retirees, oh, not our problem. What do
you mean it is not your problem? It is the State health care costs
squeezing the budget. If you look at the aggregate, we went from 20
percent of the budget to 26.7 percent of the budget.

Why do we put all our guns on Medicaid? Why don't we have the
same policies in Medicaid apply to State legislatures, health insur-
ance? Well, hey, COP AY, you got to be kidding. We don't pay
COPAY's. I am a State legislator, I don't pay COPAY's for nothing.
I have got dental care and eye care and this and that.

Mr. Upton. We have a lot of Members of Congress that would
like to run for State Rep.

Mr. HoLLiSTER. We welcome them. These new districts, they
might be able to. We might all be looking for jobs. I think that is
the point I was making. You can't just look at Medicaid, you got to
look at the other pieces. You need a national program.

The last time I was there, we were talking about Oregon. They
are struggling. We do it one way. Frankly, we are looking at the
Oregon model as well. Medicaid is breaking us and there are poli-
tics to cut Medicaid. No politics to cut school teachers. The problem
is the same. Health care costs cause pressures.

Mr. Upton. Thank you.

Mr. DiNGELL. The gentleman from Michigan, Mr. Conyers.

Mr. Conyers. Thank you, Mr. Chairman. I want to demonstrate
my ability to be brief, because lunch is here, and I know I would be
thought very well of if I conduct myself accordingly.

First of all, my thanks to you for putting Representative HoUis-
ter on. Second, I have to find out if HoUister is available as a write-
in candidate for the Democratic Presidency.

Mr. HoLLiSTER. I am available for the draft.

Mr. Conyers. Usually, draftees are very evasive about this sub-
ject, but I am glad you are so forthcoming. Finally, there is the
question of fraud, which is one of the things that brings us here to
this hearing about Medicaid. Part one. Part two.

What about the Blue Cross-Blue Shield third-party cheating that
has gone on in this State for the last 15 years that I can track out
of lawsuits — they keep losing the lawsuits, keep agreeing to pay up
and never come around.

And second, what about all of these minority providers, the black
doctors and pharmacists who are being prosecuted for Medicaid

fraud because they filled out the wrong form or made an account-
ing error? For instance, one practitioner got prosecuted in one
State for ninety-five cents difference in what the Medicaid hit team
found he should have done.

Michigan's Medicaid fraud squad just hauled off a lady, a black
female doctor and a member of Hartford Avenue Church, here in
Detroit to a 12-year sentence just last month. I called her. Chair-
man Dingell, to ask her to come and listen to this hearing; they
said she was taken to prison immediately after her trial. She is in
the slammer, you can't get to her.

So I ask for your comments on that. That is my first question.

Mr. HoLLiSTER. Well, I don't know the specific case, but, again, it
gets back to being not very smart on crime. Even if she were culpa-
ble, it doesn't make any sense to put her in prison. I would have
her in a community center providing health care. My God, we can't
get health care in the inner city of Detroit.

I think Vern can speak to the — Vern can speak to the problem.
We are the payer of last resort. We keep getting shifted with the
cost, too. It is one of the oldest problems out there. We aggressively
pursue it. They have the resources to appeal, and that is where it
goes and it drags on and on. They win by their tenacity.

Let me give you another problem. Congressman. Warren and I
were here earlier this morning. We had a meeting at 8:00 at one of
our mental health centers, and I just met with a primary care phy-
sician and it was very, very troubling.

As you know, many parts of the country are deinstitutionalizing
the mentally ill. That is a program I have supported over the
years, because I believe a comprehensive community mental health
system can work if it is properly financed, but we haven't properly
financed that system, and she was the primary caregiver for 42
group homes. The group homes in Michigan are six or less.

She just canceled her contract with all those 42 group homes,
and those 42 group homes versus no primary care physician any-
more because we are paying minimum wages, people are not
trained. They are giving double medications, the wrong medica-
tions. They don't even have the blood pressure equipment in the
facilities.

She said, *1 can't take it any more." She said, "I am aware of
several deaths. I am worried about my own liability." The system
is falling apart and several hundred developmentally disabled
people that she was giving primary care for are without health
care today in this community. That is why we were running late. I
couldn't believe the story she was telling.

People are falling through the cracks in massive levels, and I am
deeply troubled. When I came before you in October, I said the
system is collapsing. I am convinced today it has collapsed.

Mr. Gregory. I would like to add one thing that goes to your
question. I think this is a function of the confusion, the high ad-
ministering of compliance costs. We have a nursing shortage in
this country, but yet, nurses graduate in greater and greater num-
bers each year.

Patient days go down, but yet our shortage grows greater, and
that is because each year, nurses are forced to do more administra-
tion, more billing, more compliance, and that is the type of situa-

tion that this leads to. I think there is too much confusion in the
system, and those who have the opportunity to manipulate the
system have plenty of opportunity to do it.

Mr. CoNYERS. Mr. Chairman, I said I would only ask one question
and I kept my word. I close by — ^you know, this used to be your Dis-
trict many years ago. Most people have forgotten that.

Mr. DiNGELL. It used to be our district.

Mr. CoNYERS. Used to be mine, too. But at the risk of being
thrown off your subcommittee, I have got four people that I have to
acknowledge in the record. One is Susan McParland, one of the
real great poverty lawyers, who is going to be a witness, and long-
time friend of mine.

The other is Roberta Cottman at Wayne State University Phar-
macy— is that Dr. Anderson sitting in — I had to mention his name.

The third is Barbara Wynder, the lawyer who has been working
on these matters about discriminatory prosecution, which I know
you will be interested in, as I am, with Norman Clements, the den-
tist, for so many years.

Finally, in the back is Stanley Stewart, who beats my brains out
in tennis every time I am foolish enough to go out on the court
with him. I thank you so much for yielding me so much time.

Mr. DiNGELL. The Chair thanks the gentleman. Mr. Hollister and
Mr. Gregory, we thank you for your assistance. Mr. Hollister, you
have been before us several times. I regret to note we are now out
of time, but I would like to State for the record, and leave the
record open to have you and other witnesses to respond to some
questions the subcommittee will be presenting to you.

I am particularly concerned with your views with regard to the
panel which was initiated by Governor Milliken, continued by Gov- ^
ernor Blanchard in the early 1980's. That panel had as its responsi- j
bility the question of how to provide food, shelter and primary j
health care to the needy on an emergency basis. If the staff were in j
touch with you, would you give us some assistance on what the rec- j
ommendations were and what the outcome of the recommendations
were? |

Mr. Hollister. I am glad you raised that, because in that reces- [
sion. Governor Milliken became so alarmed, he declared a hunger [
emergency and actually opened a center in Lansing through the [
State police network that moved truckloads of food and they got ^
farmers contributing food. j

We had a whole number of operations moving food around; open- f
ing our National Guard shelters for homeless shelters and organiz- L
ing physicians to provide primary care. That got worldwide atten- g
tion. I am here to tell you today, circumstances got worse than |^
they were when Milliken made that declaration. jj

Mr. DiNGELL. Ladies and gentlemen, the Chair wants to thank |
all present, both our panel members and witnesses. a

The Chair announces our next witnesses will be Dr. Vernon I
Smith, director, Medical Services Administration, Michigan Depart- j
ment of Social Sciences; followed by our County Executive, my good
friend, Mr. Ed McNamara; and another panel composed of Susan |
McParland, staff attorney, Michigan Legal Services; Dr. David Ada-
many, president of Wayne State University, our host today; Mr.
James Foster, administrator, Three Rivers Area Hospital. L

The last panel will be Susan Adelman, past president of the
Michigan State Medical Society; Mr. Richard Hiltz, representing
the Michigan Hospital Association, also president and chief execu-
tive officer of Mercy Memorial Hospital.

The committee stands in recess. We will reconvene at 12:15.

[Whereupon, at 11:45 a.m., the subcommittee was recessed, to re-
convene at 12:15 p.m., the same day.]

Mr. DiNGELL. The subcommittee will come to order. Our next
witness is Dr. Vernon Smith, director of Medical Services Adminis-
tration, Michigan Department of Social Services. We are almost on
time in recognizing you. We thank you for your presence today. We
look forward to your testimony. You may consider yourself recog-
nized for such statement as you wish to give.

STATEMENT OF VERNON K. SMITH, DIRECTOR, MEDICAL SERV-
ICES ADMINISTRATION, MICHIGAN DEPARTMENT OF SOCIAL
SERVICES

Mr. Smith. Thank you, Mr. Dingell, Schaefer, Mr. Upton, other
members of the committee. Governor Engler is unable to be here
today. I am very pleased to be here, because the purpose of Medic-
aid is to assure access to mainstream health care for the most vul-
nerable of the citizens for this country is so important, and the
amount of public funds is so great that we have to continually ex-
amine the program to see how we can accomplish the program's
mission in the most effective way possible.

As we look at Medicaid, we find a series of paradoxes and appar-
ent contradictions. We know, for example, that all the poor is not
served by Medicaid. Nationally less than half of those below the
Federal poverty line is served by Medicaid. In Michigan, perhaps
30 to 40 percent of those below the poverty line is not served. Yet
at the same time we know that Medicaid serves over 1 million citi-
zens of Michigan of the 11 to 12 percent of the population is in fact
served by the program.

We know that doctors, dentists, other health care providers are
increasingly departicipating or limiting their practice with respect
to Medicaid. And yet, when we look at the data, we find that most
doctors, most dentists and most health care providers and all the
hospitals in this State do in fact participate and serve Medicaid pa-
tients.

We know that Medicaid patients sometimes cannot find a doctor
for themselves or their child, yet when we look at the data, we find
Medicaid patients see physicians at almost exactly the same rate as
do other insured populations in this State, those covered by Blue
Cross/Blue Shield Michigan, those covered by the State Employees
Retiree Health Program, or other commercial health insurance.
We know pregnant patients on Medicaid have an especially diffi-
cult time finding a physician to provide the prenatal care or deliv-
er their baby. It seems a week hardly goes by but what we hear
someone has difficulty finding a physician for a pregnant lady.

And yet. Medicaid covers the delivery, and most or all of the pre-
natal care for over 62,000 women in this State each year. That is
over 41 percent of all the babies born in this State have their deliv-
ery paid for by Medicaid.

We know there are concerns about enrolling Medicaid patients in
managed-care plans. Yet we find right now in Michigan, over a
quarter of a million of the 950,000 eligibles have voluntarily chosen
to enroll in a managed-care plan as their choice where they would
like to receive care, whether that is through a patient loan plan or
for a fee-for-service plan called a Physician Sponsored Plan in
Michigan, which I know in Colorado there is a plan which has
emulated that as well for Medicaid patients in Colorado. We know
there are concerns about the quality of care in certain managed-
care plans. When our studies have looked at the quality of care and
access to care, we find managed care guarantees access to better
care, that the quality of care is at least as good if not better, in fact
our studies show that patients in managed care were 16 percent
more likely to receive the care which they needed than those out in
the regular fee-for-service system.

We know that Medicaid fees are low. We hear about that a lot.
And yet even though Medicaid fees, what we pay for any individual
service, is low, we look at the cost of the program and we find that
costs have grown so fast and become so large that it is, I think,
most would say, the most serious budget problem among the Na-
tion's Governors, the State budget directors, and legislators, those
who have to make the difficult decisions on the allocation of scarce
public dollars.

Indeed, program cost, and I appreciated the eloquence with
which Representative HoUister described this issue previous to my
remarks, program cost is in fact the most significant issue, I think,
in the program today. Medicaid operates in a health care market-
place where costs have increased at roughly twice the rate of in-
crease for prices in general.

We have tried just about every cost containment measure that
showed any promise at all of helping to control costs. Limiting eli-
gibility, adjusting reimbursement rates, controls on coverage, limi-
tations on coverage and the imposition of a variety of controls, all
in an effort to try and control the cost of this very expensive pro-
gram.

Still, costs continue to skyrocket at greater than other State pro-
grams and certainly greater than the growth in State revenues. In
these very difficult economic times, when cutbacks are occurring
across all State programs in virtually every State, it seems to me
that the budget cannot survive a Medicaid program that goes like
this, nor can the Medicaid program survive in economic times as |
these are, the budget situation we are in, the difficulty in State j
revenues not growing as fast as the program when we look at the |
causes of cost growth from the State perspective, one of the first \
places that we look at is what has come to be known as the un- \
funded Federal mandates. Much has been said on this issue. For
brevity, let me reiterate that States cannot accept any further re-
sponsibility for program expansions without the funds to go with
the new responsibilities.

In addition. State Medicaid programs can use some assistance to
help control program costs, and help us move toward more effec-
tive programs. States need some room and some support for inno-
vation and creativity. The current Federal labor process is obtuse
and time consuming and discourages and obstructs State innova-

tion. We need an opportunity for States such as Oregon and other
States that have proposed innovations to have a chance to try
those things which reflect the values, the interests, and the prior-
ities of the policymakers in those particular States.

Second, I mentioned we need support for more effective man-
aged-care programs. I mentioned our managed-care programs here
and how we find they improve access, ensure and guarantee qual-
ity of care, and they serve to reduce costs. It turned out to be in
the most recent study 10 percent less expensive, and fee-for-service
followed in assuring quality of care and access.

The process right now for carrying out these kinds of programs
requires waivers. It should be a State-planned option for Medicaid,
and there are some other things which would simplify which are
under consideration in other parts of the Congress now. We ask
your support of those as well.

If the current Medicaid program is in fact to accomplish its pur-
pose as a health care program of last resort and serve the health
care needs of the poor in this country, we need assistance. It is im-
portant to have an effective and efficient program. The amount of
money is too important and the health of the citizens of this coun-
try is so important that we need all the help we can get.

So we appreciate the fact this hearing is being held, that you are
taking a look at it, and any assistance you can offer to make the
program more effective, we certainly appreciate.

Thank you for the chance to present the testimony, Mr. Chair-
man.

[Testimony resumes on p. 116.]

[The prepared statement and attachments of Mr. Smith follow:]

STATEMENT OF VERNON K- SMITH. PH-D-. DIRECTOR

MEDICAL SERVICES ADMINISTRATION
MICHIGAN DEPARTMENT OF SOCIAL SERVICES

Mr. Chairman. I am Vernon K. Smith. Director of the Michigan
MEDICAID Program. I am pleased to be here today as a

REPRESENTATIVE OF GOVERNOR JOHN ENGLER. AND GERALD MILLER.

Director of the Michigan Department of Social Services. I am

here to TESTIFY ON THE SEVERAL ISSUES AND PROBLEMS FACING

medicaid programs today. and the opportunities for addressing
them at the state and federal levels-

The original purpose of Medicaid, as articulated in 1965. was to
provide access to mainstream health care for certain low income
Americans, in particular for dependent children and their parent
or parents. the disabled and those over age 65.

Congress provided states the opportunity to administer Medicaid
and to structure it to reflect the priorities and interests of
each of the states and territories. the result has evolved into
very different programs in each of the states and territories,
each with its own set of coverages. payment rates and eligibility
levels. no two of the 56 individual medicaid programs are the

SAME.

What is common to each Medicaid Program, however, is that each

SEEMS TO be accomplishing IN LARGE PART THE ORIGINAL PURPOSE OF

THE PROGRAM. ALLOW ME TO LIST SOME OF THE INDICATORS BY WHICH

Medicaid success can be measured in Michigan:

* Most medical providers do participate in Medicaid and do
ACCEPT Medicaid payment as payment in full- Access to health

CARE DOES EXIST.

* MEDICAID SERVES OVER 1 MILLION MICHIGAN RESIDENTS EACH YEAR.

* MEDICAID PROVIDES PAYMENT FOR 5 MILLION PHYSICIAN VISITS PER
YEAR. The average OF 5.1 PHYSICIAN VISITS PER ELIGIBLE PER
YEAR IS IDENTICAL TO THE 5-1 AVERAGE EXPERIENCED BY OTHER
INSURED POPULATIONS IN MICHIGAN AND IN THE UNITED STATES-

* MEDICAID PROVIDES PAYMENT FOR 180.000 INPATIENT HOSPITAL STAYS
PER YEAR.

* Medicaid paid for delivering over 40% of all the babies born
IN Michigan last year. This amounted to over 62.000 of
153,000 births-

* Medicaid paid pharmacies for almost 12 million prescriptions
FOR Medicaid patients last year.

* Medicaid patients who have chosen to enroll in HMOs for their
mainstream care now number over 150.000. an additional
100.000 have enrolled with a physician under the michigan
Medicaid Physician Sponsor Plan.

* Medicaid paid for 12 million patient days in nursing homes
last year. medicaid now pays for all or part of the care for
2/3 of all nursing home patients-

* Over 30.000 Medicaid recipients with mental health needs

-2-

RECEIVED COMMUNITY-BASED REHABILITATION, CLINIC AND CASE
MANAGEMENT SERVICES-

* Over 27,000 persons received personal care services in their
OWN homes, helping them to carry out the normal activities of
life and avoid placement in more restrictive settings-

* medicaid provides catastrophic coverage for such services as
neonatal intensive care and organ transplants- michigan
Medicaid annually is providing coverage for 5,000 neonatal
intensive care cases (at a cost of $90 million) and 150 organ

TRANSPLANTS (INCLUDING 67 BONE MARROW, 50 LIVER AND L4 HEART
TRANSPLANTS, AT A COST OF $18 MILLION)-

MEDICAID IN Michigan is now a $3 billion program- The Michigan
MEDICAID Program serves as its own fiscal intermediary- Last

year the program processed 50 MILLION CLAIMS- THE AVERAGE TIME
ELAPSED FROM DATE OF RECEIPT OF A CLAIM UNTIL DATE OF PAYMENT FOR

THE Michigan Medicaid Program is less than 17 days- For
physicians, payment is made on the average within 19 days; for
pharmacies, the average is less than 15 days-

The Michigan Medicaid Program, like other state programs, carries
out its duties with cost efficiency which is the envy of the
health insurance industry- The standard measure of efficiency in

THIS AREA is TOTAL ADMINISTRATIVE COSTS AS A PERCENTAGE OF CLAIMS
PAID- For PURPOSES OF COMPARISON, I CAN TELL YOU THAT ON AVERAGE
ADMINISTRATIVE COSTS AS A PERCENTAGE OF CLAIMS PAID ARE ABOUT 3%
FOR MEDICARE, 6 TO 8% FOR A TYPICAL BLUE CROSS/BLUE SHIELD PLAN,

-3-

12 TO 15% FOR A TYPICAL HMO. AND UP TO APPROXIMATELY 30% FOR

commerical insurers- for the michigan medicaid program,
administrative costs as a percentage of claims paid (at medicaid
rates) were 1-9% in 1990 (the most recent year for which complete
data are available).

notwithstanding the successes and accomplishments in medicaid in
Michigan and other states, there are several issues and problems
currently faced by medicaid programs which must be addressed-

1- Increases in program cost-

Foremost among issues is the seemingly out-of-control nature
OF Medicaid costs-

Medicaid costs are breaking the bank in state treasuries
across the country- medicaid costs in michigan are no
exception- Medicaid purchases health care in the same
marketplace as do other insurers, self-insured employers and
individuals. as we all know. health care costs have
skyrocketed. increasing at approximately twice the rate of
other prices. health care expenditures have doubled in the
last five years. but. because of the need to balance state
budgets and through creative cost containment measures.
Medicaid programs have been able to hold down costs to a
lower rate of increase; the average medicaid program has

DOUBLED IN COST OVER THE LAST 8 TO 10 YEARS- THE ATTACHED

-4-

58-688 0-92-4

table demonstrates that. had michigan's medicaid costs
increased at the rate of general medical inflation. michigan
would have faced $112 million in additional costs in 1989-

nevertheless. the medicaid program has become the largest
single expenditure category in more than half the states
(according to the national governors' association).
Sometimes we're not sure if Medicaid can survive the budget
OR the budget can survive Medicaid. In Michigan,
expenditures have increased from $1-5 billion in 1985 to
$3 billion in 1991. as a percent of the state budget,
michigan's experience has paralleled that of most states,
increasing from about 9% of the budget in 1985 to 14% of the
budget last year-

In reviewing the proposed budget for fiscal year 1992-93.
which was submitted by the governor to the legislature
earlier this month. i was struck by the extent to which
medicaid now dominates the budget for the department of
SOCIAL Services, medicaid is now over half -- 53% — of the

STATE'S LARGEST SINGLE BUDGET. UP FROM LESS THAN 40% JUST A

FEW YEARS AGO- MEDICAID IS NOT ONLY THE PAC-MAN OF THE

STATE'S BUDGET. IT IS THE PAC-MAN OF THE SOCIAL SERVICES'
BUDGET AS WELL-

-5-

Because of these budget problems, it has been necessary to
consider drastic reductions in the program itself- last
year, the legislature considered and adopted a
recommendation to substantially scale back coverages in the
Michigan program. Targeted for elimination were services

SUCH AS hearing, VISION, DENTAL, DURABLE MEDICAL EQUIPMENT

such as wheelchairs, prosthetic devices, orthotics, speech
therapy, physical therapy, occupational therapy, podiatry
and chiropractic services-

After the legislature had adopted this budget, we were able
to determine that all of these cuts would not be necessary
in order to live within the funds which had been
appropriated. as a result, actual program cuts were limited
to the following: all dental services, including dentures,
for adults; podiatry services; chiropractic services; non-
essential non-emergency transportation and outreach services
for the epsdt program. in addition, the copay for
prescribed drugs was increased from 50 cents per
prescription to sl-oo-

We ARE NOW AT OUR WIT'S END.

Over the past decade Medicaid has implemented virtually
every cost containment measure that held promise of
controlling costs.

-6-

Literally, there are very few options left that states can
exercise on their own.

we need help.

i propose to the committee that the time has come for
Congress to examine how it has exacerbated the cost problem
through unfunded mandates. and for congress to commit to
fully fund the federal responsibility. including the recent
mandates.

The PURPOSE OF Medicaid is too important for states to

ATTEMPT THE JOB WITHIN THE FUNDING AVAILABLE TO THE STATES-
As PRESIDENT BUSH SAID IN HIS STATE OF THE UNION MESSAGE
LAST YEAR. EVERYONE IN THIS COUNTRY DESERVES GOOD HEALTH
CARE. We wish that we WERE IN A BETTER POSITION TO
PARTICIPATE AS FULL FINANCIAL PARTNERS IN THIS ENDEAVOR-
UNFORTUNATELY. WE CANNOT DO SO- THEREFORE. I STRONGLY URGE

THE Congress to fund the program fully and adequately so

THOSE PURPOSES ARTICULATED BY THE CONGRESS IN 1965 CAN BE
FULFILLED.

2- UNFUNDED FEDERAL MANDATES-

Since the mid 1980s, several mandates have been adopted by
congress which have contributed significantly to increases
in medicaid costs-

-7-

Since 1986, Congress has mandated new Medicaid expenditures

FOR:

* Eligibility expansions for pregnant women (to 133% of

THE federal poverty LEVEL (FPL), AT STATE OPTION TO 185Z
OF FPL, AN INCREASE FROM MICHIGAN'S FORMER LEVEL OF ABOUT
58% OF THE FPL)

* eligibility expansion for children up to age 6 (to
133% of the fpl, an increase from 58% of the fpl)

* Eligibility expansion for children from age 7 to 18

(TO 100% OF THE FPL, phased IN FROM OCTOBER 1, 1990 TO

include all children born after september 30, 1983, so
all children below the poverty line up to age 19 will be
eligible for medicaid by the year 2002).

* Coverage expansions for children's services under
EPSDT, such that any service requested by an EPSDT

PROVIDER must BE PAID BY MEDICAID, EVEN IF IT IS NOT
OTHERWISE A COVERED BENEFIT UNDER THAT STATE'S MEDICAID
PLAN.

* Service expansions for nursing home services requiring
Medicaid reimbursement for increased nursing home staff
and other services above that which was the community
norm for many facilities.

-8-

• Reimbursement mandates for retrospective full-cost

PAYMENTS for SELECTED GROUPS OF PROVIDERS, SUCH AS

Community health Centers. Migrant Health Centers and
Health Centers for the Homeless.

Many of these mandates have had the objective of assuring
health care for otherwise uninsured low income children and
pregnant women- we cannot argue with this objective-

However, this improved health coverage comes at a
considerable cost which states cannot now afford-

i offer as one specific example the cost of expanded
eligibility for pregnant women and children up to 133x of
the poverty line (at state option up to 185% of the federal
poverty level) -

michigan adopted the option of 185x of the federal poverty

LEVEL IN 1988- At THAT TIME. IT WAS FORECAST THAT ANNUAL
EXPENDITURES WOULD TOTAL APPROXIMATELY $12 MILLION PER YEAR-
In LIGHT OF BUDGETARY EXPECTATIONS IN 1988. THE PRESENT
SITUATION IS QUITE STRIKING- SPECIFICALLY. THE EXPANDED
COVERAGE FOR PREGNANT WOMEN. INFANTS AND CHILDREN UP TO AGE
8 IS PROJECTED TO COST $100-3 MILLION IN FY 1992-

-9-

States are staggering under the weight of these increased
COSTS. If Congress is to force states to adopt particular
POLICIES, Congress must be willing to fully fund the

MANDATES AS WELL- WE AT THE STATE LEVEL CANNOT ACCEPT
CAPS ON FEDERAL MEDICAID CONTRIBUTIONS- WE ARE WILLING TO
WORK TOGETHER TO CONTROL THE COSTS OF HEALTH CARE, BUT WE
SHOULD DO SO IN A WAY THAT TRULY CONTAINS COSTS. AND DOES
NOT JUST SHIFT COSTS FROM THE FEDERAL GOVERNMENT TO THE
STATES.

Managed care.

Our fiscal year 1993 budget is also predicated on a
significant managed care expansion. michigan has been a
leader in managed care for many years- our first hmo
contract was signed in 1972- michigan inaugurated one of
the nation's first primary care case management programs in
1982- This approach, which in Michigan is called the
Physician Sponsor Plan (or PSP), is designed to ensure that
Medicaid patients can select a primary care physician who
has agreed to provide or authorize all medical care required
for that patient. we now have contracts with over 1,200
doctors who serve as physician sponsor/case managers- over
100,000 medicaid patients are now enrolled with a physician
through psp.

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100

Our evaluations document the benefits of managed care with
respect to cost savings, access and quality of care-
Specifically, our evaluations show that patients enrolled in
managed care incur health care costs approximately 10% less
than that of patients in regular fee-for-service situations-
Access is assured, 24 hours per day, 7 days per week, per
the terms of the contract which managed care providers sign-
Compliance with the access provisions of the contract is
enforced through regular surveys and follow-up to ensure
that genuine access does exist-

Our evaluation of quality was conducted by the Michigan Peer
Review Organization- MPRO looked at the medical records of
patients in managed care and those who were not, and
concluded that Medicaid patients in a managed care situation

ARE more likely TO RECEIVE THE CARE WHICH IS APPROPRIATE TO
THE PATIENT'S CONDITION, AND THEY ARE 16% MORE LIKELY TO
RECEIVE ALL OF THE CARE WHICH IS APPROPRIATE FOR THEIR
MEDICAL SITUATION.

We have found the benefits of managed care to BE SO

compelling that we have charted a course to enroll all
950,000 Michigan Medicaid patients in managed care over the
next 2 years- this means we have taken on the ambitious
challenge of enrolling 700,000 medicaid patients who now
receive care in the fee-for-service system- throughout
1992, we are marketing medicaid to the 11 michigan hmos with

101

whom we do not yet have a contract. and we are working with
the medical community to lay the groundwork for signing
contracts under the physician sponsor plan with physicians
across the state- our goal is to enroll an additional
100.000 Medicaid patients in managed care situations by next
October 1- To do so will involve enrolling all the
remaining 100.000 Medicaid eligibles in Wayne County who are

NOT yet in managed CARE- BEGINNING NEXT FALL. WE WILL BEGIN
THE ENROLLMENT OF THE REMAINING 600.000 MEDICAID PATIENTS IN
THE URBAN AND RURAL AREAS OF LOWER MICHIGAN AND EVENTUALLY
THE UPPER PENINSULA AS WELL-

We are also UNDERTAKING A PROJECT TO APPLY MANAGED CARE
CONCEPTS TO MENTAL HEALTH CARE- IN COLLABORATION WITH DMH
AND THE NETWORK OF PUBLIC COMMUNITY MENTAL HEALTH PROVIDERS.
WE ARE EXPLORING WAYS TO ENSURE ACCESS. CONTINUITY OF CARE
AND COST EFFECTIVE SERVICE SELECTION FOR THE MEDICAID
POPULATION.

As WE ATTEMPT TO PROCEED WITH THIS EXPANSION IN MANAGED
CARE. WE FIND THAT CERTAIN FEDERAL REQUIREMENTS ARE STANDING

IN OUR WAY. Rather than promoting managed care, the federal
government is acting as an uncooperative partner- i call
your attention to s- 2077 introduced by senator moynihan.
That legislation would amend Sections 1902 and 1903 in such
a way as to allow medicaid programs to operate case
management systems more effectively. Specifically, this

102

PROPOSED LEGISLATION WOULD REQUIRE INTERNAL QUALITY
ASSURANCE SYSTEMS IN LIEU OF THE ARTIFICIAL 75/25 ENROLLMENT
MIX REQUIREMENT, IT WOULD SIMPLIFY THE FREEDOM OF CHOICE

waiver requirement, and it would simplify the hcfa approval
requirement on hmo contract renewals- we need the
flexiblility allowed by s- 2077 to implement our managed
care programs.

4. drug rebate program-

Congress should be commended for their efforts to reduce
Medicaid pharmaceutical costs. We wholeheartedly agree that
Medicaid should receive discounts available to hospitals and
hmos. however, the obra 90 drug rebate program has
potential to complicate rather than simplify a state's
ability to determine cost-effective drug coverages and to
negotiate pharmaceutical rebates-

Along with implementing manufacturer rebates. Congress
imposed many new requirements on states:

* most new products must be covered for 6 months without
prior authorization

* pharmacy prior authorization reviews must be completed
within 24 hours and the state's response must be by
telecommunication

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103

* FOR 4 YEARS, STATES CANNOT CHANGE THEIR PAYMENT METHOD
IF PHARMACY PAYMENTS WILL BE LOWERED

* STATES MUST IMPLEMENT DRUG USE REVIEW PROGRAMS INCLUD-
ING PHARMACIST-PATIENT COUNSELING AND MEDICAID EDUCATION
PROGRAMS WITH PHARMACIES AND PRESCRIBERS ON DRUG INTER-
ACTIONS

Rebate payments will be significant- However, intensive
program audits will be required to resolve manufacturer
disputes on utilization data- more importantly. congress
has taken away our ability to manage the drug program and
determine coverages based on input from our own state's
medical and pharmacy communities- states are best suited to
fashion their own drug programs, to establish formularies
and to conduct utilization review- we regret this
unfortunate loss of state flexibility-

BoREN Amendment.

The Boren Amendment specifies that Medicaid reimbursement
for hospitals and nursing homes must be sufficient to meet
the full costs of an economically and efficiently operated

INSTITUTION. The ORIGINAL INTENT OF THE BOREN AMENDMENT WAS
TO ENSURE THAT MEDICAID DID NOT PAY TOO MUCH- THAT
AMENDMENT HAS NOW BEEN INTERPRETED BY THE COURTS TO MEAN

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104

THAT Medicaid must essentially pay full costs incurred by

THESE institutions.

Michigan is among the 2-dozen states which have faced

LAWSUITS brought BY HOSPITAL AND NURSING HOME ASSOCIATIONS-

In our case, a court-ordered settlement increased our
inpatient costs by $70 million last year. and our nursing
home costs by approximately $15 million last year.

While we have no quarrel with the goal of fair payment for
quality nursing home services. we believe that the impact of
the boren amendment has the effect of funneling many more
resources into institutional reimbursement. often at the
expense of community-based alternatives. which do not have
"mandate" status. michigan. one of the pioneers in the use
of personal care for community-based services. is now being
forced to consider limits on this service.

It is our recommendation that Congress specify in law a
clearer definition of what is meant by "economic and
efficient." This would allow Medicaid programs to establish
reimbursement methodologies which would in fact encourage
efficient and economic costs. and could have the result of
saving tens of millions of dollars currently expended for
hospital and nursing home services-

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105

6. Federal requirements for documenting provider participation.

Pursuant to Section 6402 of OBRA 89> state Medicaid programs
are required to document the participation of physicians who
provide ob and pediatric services- the intent evidently is
to document that sufficient provider participation exists to
assure access to ob and pediatric care- i can tell you that
the true effect of this section is to foster creativity to
generate data which will not lead to improved access to

CARE-

Congress would be better served to seek data on the quality
of care. the accessibility of care, and the satisfaction
with care provided to medicaid patients, vis-a-vis
mainstream americans-

7. Federally-qualified health centers.

Federally-qualified health centers are part of the backbone
of health care delivery for low-income americans- these
community health centers, rural health centers and health
centers for the homeless do an exemplary job of serving
Medicaid and non Medicaid patients alike-

OBRA 89 INCLUDED requirements that Medicaid reimburse these

HEALTH CENTERS FOR THEIR FULL COSTS- MEDICAID PROGRAMS.
HOWEVER, HAVE BEEN MOVING AWAY FROM FULL-COST REIMBURSEMENT-

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106

Full-cost, cost-based reimbursement has the wrong incentives
with respect to efficiency and economy- it is a regressive
step to require that medicaid offer such full-cost
retrospective payment in the case of federally-qualified
health centers. notwithstanding the fine job which they do
serving this patient population-

If the INTENT OF CONGRESS WAS TO ASSURE THE ECONOMIC
VIABILITY OF THESE HEALTH CENTERS. IT WOULD BE FAR BETTER TO
DO SO DIRECTLY WITH FEDERAL FUNDS THROUGH THE PUBLIC HEALTH
SERVICE THAN TO DO SO BY MANDATING SUCH PREFERENTIAL
REIMBURSEMENT THROUGH MEDICAID- WE ARE CONCERNED THAT THIS
PREFERENTIAL TREATMENT OF ONE PROVIDER TYPE WILL SURELY LEAD
TO ADDITIONAL LITIGATION ON THE PART OF OTHER INSTITUTIONS
AND PROVIDERS WHO FEEL THEY SHOULD ALSO BE REIMBURSED THEIR
FULL COSTS FOR SERVING THE MEDICAID POPULATION-

8- AUDIT AND DISALLOWANCE REFORM-

We are CONCERNED THAT HCFA AUDITING PRACTICES MAY RESULT IN
MULTIMILLION DOLLAR DISALLOWANCES OF FEDERAL FUNDS FOR MINOR
PROCEDURAL INFRACTIONS-

STATES are SEEKING CONGRESSIONAL ASSISTANCE IN FOCUSING THE
AUDIT AND DISALLOWANCE PROCESS ON AREAS AFFECTING QUALITY OF
CARE AND EFFICIENT PROGRAM OPERATION. RATHER THAN MINOR
PROCEDURAL REOUI REMENTS -

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107

The federal government has the right and responsibility to
audit state medicaid programs- states contend that the
audits should focus on items that adversely affect quality
of care or efficient program administration- if an audit
reveals a procedural error that does not affect quality,
eligibility, or appropriateness of services provided, the
state should be allowed an opportunity to come into
compliance without financial penalty-

Senator Chafee has introduced S- 1240 which addresses these
CONCERNS- Under the bill, states would be allowed to come
into compliance without financial penalty in situations
where hcfa finds that the infraction does not adversely
affect quality of care or result in provision of medically
unnecessary or inappropriate services- s- 1240 also would
prohibit a disallowance when a state operates in accordance
with an approved state plan-

we believe that this legislation would have a positive
impact on oversight of the medicaid program because it would
focus audits on those areas where quality of care is in
jeopardy rather than where large disallowances are possible -

9- WAIVERS-

States need more latitude to shape their own programs- In
order to implement or continue to operate an innovative (and

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108

SOMETIMES A "MAINSTREAM") PROGRAM. STATE STAFF MUST SPEND
MONTHS OF EFFORT APPLYING FOR WAIVERS AND DOCUMENTING THE
COST-EFFECTIVENESS OF PROGRAMS FOR WAIVER RENEWAL- HCFA'S
WAIVER PROCESS IS IN DIRE NEED OF IMPROVEMENT- INSTEAD OF
SETTING UP ROADBLOCKS, HCFA SHOULD BE ENCOURAGING UNIQUE
APPROACHES LIKE THE OREGON PRIORITY-SETTING PROJECT- BUT.
THE CUMBERSOME AND TIME-CONSUMING WAIVER PROCESS HAS KEPT
OREGON MEDICAID STAFF BUSY FOR MONTHS. IF NOT YEARS- MY
STAFF SHOULD BE PURSUING INITIATIVES TO IMPROVE QUALITY OF
CARE. EXPAND SERVICES AND ASSESS ALTERNATIVE DELIVERY
METHODS RATHER THAN COMPLYING WITH HCFA WAIVER POLICIES THAT
DO LITTLE TO FOSTER CREATIVITY AND INNOVATION- IN HIS
NATIONAL ADDRESS ON HEALTH CARE REFORM IN CLEVELAND EARLIER
THIS MONTH. PRESIDENT BUSH COMMITTED HIS ADMINISTRATION TO
FLEXIBILITY. AND A STREAMLINED WAIVER APPROVAL PROCESS- WE
ENCOURAGE EFFORTS BY CONGRESS TO STREAMLINE THE WAIVER
PROCESS IN ANY WAY POSSIBLE-

10- FRAUD AND ABUSE.

FRAUD AND ABUSE WILL ALWAYS EXIST IN MEDICAID- BUT. WE HAVE
A NUMBER OF OVERSIGHT MECHANISMS TO CATCH AND CORRECT
ABUSES- The FIRST IS MICHIGAN'S MEDICAID FRAUD CONTROL UNIT

(mfcu). which is housed in the department of the attorney
General- The cooperative relationship between the MFCU and
OUR MEDICAID Program is exemplary-

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109

The second major oversight mechanism is the Surveillance and
Utilization subsystem of our Medicaid Management Information
System. This system allows analysis of patterns of provider

AND recipient ACTIVITY, WITH RESULTANT RECOVERY OF MEDICAID

funds and the correction of the actions resulting in
overpayments. in addition. doctors may be excluded from
Medicaid participation and recipients placed in utilization
control programs that assure access only to absolutely
necessary services.

Finally, our Medicaid Program provides essential information
to other agencies, such as the state's health professions
licensing authorities, the dea, the office of the u-s-
Attorney and the FBI. Cooperation with these agencies has

RESULTED IN A NUMBER OF CRIMINAL CONVICTIONS, CIVIL
RECOVERIES, MONETARY PENALTIES AND LOSS OF PHYSICIAN
LICENSURE.

These mechanisms are generally effective in controlling

FRAUD AND ABUSE. HOWEVER, EVEN SUCCESSFUL EFFORTS AGAINST
WASTE ARE ADVERSELY AFFECTED BY FEDERAL POLICY AND STATUTE.

Michigan has lost millions of dollars to the bankruptcy
statutes and provider bankruptcy declarations after the
state has obtained recovery judgements- also. federal
policy requiring a state to send to the federal government
identified overpayments from fraud and abuse before the
state collects them creates problems. given the often

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110

LENGTHY PROCESS REQUIRED TO ESTABLISH AN AMOUNT OWED BY A
PROVIDER TO MEDICAID. STATES ARE PUT IN THE POSITION OF
HAVING TO PAY THE FEDERAL GOVERNMENT LONG BEFORE THEY CAN
RECOVER THE FUNDS AT ISSUE- WE WOULD WELCOME AN IMPROVED
FEDERAL-STATE PARTNERSHIP TO HELP US IN RECOVERY/CORRECTIVE
SITUATIONS.

MEDICAL SUPPORT AND ERISA-

MICHIGAN'S STATUTE AND FEDERAL REGULATIONS REQUIRE THAT
CHILD SUPPORT ORDERS INCLUDE THE OBLIGATION THAT PARENTS
PROVIDE HEALTH CARE COVERAGE TO THEIR CHILDREN WHEN
AVAILABLE THROUGH THEIR EMPLOYERS- MANY STATES ARE

ATTEMPTING TO ENSURE THAT PARENTS PROVIDE THIS HEALTH CARE
COVERAGE; HOWEVER; THE EMPLOYEE RETIREMENT INCOME SECURITY

Act (ERISA), which prohibits states from regulating self-
funded EMPLOYERS. PREVENTS STATES FROM ENACTING SUCH

legislation. Because most of the large employers in
Michigan are self-funded, the Medicaid Program loses a
significant opportunity to collect third party liability
payments from absent parents- re would welcome a change in
erisa to make it possible for us to require absent parents
to provide insurance-

-21-

Ill

Conclusion.

In conclusion, we have much to be proud of in the Michigan
Medicaid Program. In the face of continued fiscal constraints.
WE have provided payment for comprehensive, mainstream health

CARE FOR MILLIONS OF LOW-INCOME RESIDENTS. BUT. WE FACE NUMEROUS
CHALLENGES. IN PARTICULAR. WE SEEK YOUR HELP IN STRENGTHENING
AND REFINING OUR FEDERAL-STATE PARTNERSHIP. STATE MEDICAID
PROGRAMS HAVE BEEN THE LEADERS IN PROVIDING COST-EFFECTIVE HEALTH
CARE. But. STATES NEED THE FREEDOM TO IMPLEMENT NEW APPROACHES
AND TO OPERATE WITHOUT UNDUE INTERFERENCE IF STATES ARE TO
CONTINUE TO PROVIDE FUNDING FOR THIS PROGRAM. THE FEDERAL-STATE
PARTNERSHIP MUST BE FLEXIBLE ENOUGH TO ALLOW INNOVATION AND
CREATIVITY TO FLOURISH- HOWEVER. MEDICAID PROGRAMS CANNOT CARRY
THE BANNER OF COST CONTAINMENT ALONE- THIS COUNTRY NEEDS TO MAKE
A CONCERTED EFFORT TO GET HEALTH CARE COSTS UNDER CONTROL-
STATES CANNOT BE EXPECTED TO SHOULDER THE ADDITIONAL BURDENS OF
THE POOR AND UNINSURED OR ADDITIONAL SERVICE COVERAGE WITHOUT
INCREASED FEDERAL FUNDING AND SUPPORT. STATE ATTEMPTS TO
GENERATE ADDITIONAL FUNDING FOR WORTHWHILE PROGRAMS HAVE BEEN
THWARTED LEGISLATIVELY. AND WE NEED FEDERAL ASSISTANCE TO ASSURE
THAT WE HAVE THE RESOURCES TO MEET THE NEEDS OF OUR MEDICAID
BENEFICIARIES.

Thank you for the opportunity to present my views- I would be

HAPPY TO ANSWER ANY QUESTIONS-

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112

MICHIGAN MEDICAID
TRENDS IN RECIPIENTS AND EXPENDITURES
FISCAL YEAR 1992 - FISCAL YEAR 1991

FISCAL YEAR

RECIPIENTS

EXPENDITURES

1982

1,174,833

$1,292,630,601

1983

1, 187, 612

1,421,703,450

1984

1,155,165

1,574,044,207

1 , 1 J J , J 1 /

i , bib , oU / , b jy

1986

1,119,724

1,767,799,061

1987

1,125,047

1,823,426,565

1988

1,104,770

1,806,466,966

1989

1,018,934

1,939,094,843

1990

1,047,963

2,194,769,814

1991

1,112,533

2,540,086,697

Recipients = Unduplicated count of eligibles who received at
least one service

Expenditures do not include capitation payments

Source: HCFA-2082

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113

Medicaid Recipient Population

Source: HCFA-2082

2,000,000 , , , , , ,

I j j ; ;
1 ,800,000 ! i ! I

1 ,600, 000 I I I I I

1 ,200,000
1,000,000
800,000
600,000

1082 1883 1084 108B 1086 1 987 1068 1088 1 980 1 091

IVIedicaid Expenditures

Source: HCFA-2082

si .200,000,000 1 : , I , !

. j

81,000,000,000 I • i I ! I I ! 1

1982 1883 1684 1985 1986 1087 1986 1666 1880 108

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114

115

Physician Visits Per Person

Michigan Medicaid 1980 - 1989

Visits/Year

8 f

.. . „ 6.a _ .

, AFDC Adult — 6.5

1 h-

3.6 AFDC Child

^ 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

Year

— AFDC Adult + AFDC Child
Non-lnstitutionaiized AFDC Only

Ratio of Physician Payments to Charges
Michigan Medicaid 1980 - 1991

MD Payment as % of Charge

1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991

Year

— MD Payments/Charges

Michigan Ciaima Proceaaing Data for MDa

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116

Mr. DiNGELL. We very much appreciate your presence and your
very helpful testimony. I am sure my colleagues will have a
number of questions they will want to direct to you. I recognize my
good friend from Colorado, Mr. Schaefer.

Mr. Schaefer. Thank you, Mr. Chairman. Dr. Smith, I appreci-
ate the fact you are here today. I know you are familiar with our
State of Colorado, and you are welcome to keep coming out as you
have since 1982. We always need those dollars in the State. Colora-
do, for example, this year, if I am not mistaken, was about $40 mil-
lion short on Medicare. This caused the State legislature many mo-
ments of anguish. We operate on a balanced budget amendment as
many States do. I know you have tried a lot of things to curb the
cost increases here in the State of Michigan, in the program, but
despite your efforts, there are a number of factors, such as the
policy of the Federal Government, that limits the degree to which
States can control the cost in growth. Is that correct? You might
want to specify on that.

Mr. Smith. Certainly our constraints are the Medicaid programs
and the Federal/ State partnership. The States are required to pro-
vide coverage for a certain list of what are known as mandatory
coverages, and have the ability to choose from a list of 33 of what
are known as optional or nonmandatory coverages, things such as
prescribed drugs or physical therapy, just to name a couple of the
so-called options. Plus there is a large body of Federal regulations
which control and constrain what a State can do.

We are continually looking for more effective ways to provide
care, and that requires us to seek waivers, and the waiver process,
as I indicated, is very obtuse. We are looking for ways — it would
help us a lot if there were ways to streamline that particular proc-
ess so we can do things which are more innovative.

It would also help us if some of the constraints in terms of what
we had to cover and how it is covered could be reconsidered. I look
just as an example, and not to necessarily endorse every aspect of
what Oregon is doing, but what Oregon is doing is appealing to a
State Medicaid program from the perspective that they have
looked at the whole body of what can be done in a health care
system, and have taken the time to work with the citizens of that
State to create a prioritized list. This isn't one person's list. This is
a list which derived out of a lot of study and review and the in-
volvement of literally thousands of interest groups and individuals
in that State.

And what they have done is to say, everything that a physician
does isn't necessarily as effective and necessary as other things
which a physician might do. And so they have been able to say
some things should be covered and some things can be done more
effectively if they are done another way. They have drawn a line
and said, we are not going to cover everything, but we are going to
cover everybody below the poverty line.

So they have raised their eligibility level. That kind of innova-
tion, again, I think what needs to be done is that States should
have the ability to design the system which best reflects the prior-
ities and interests of the policymakers in that State. But that is a
very fascinating experiment, and right now it is not allowed with-
out some special consideration.

117

I Mr. ScHAEFER. One of the concerns I have always had is regard-
ing the health care for our senior citizens. I know a number of doc-
tors I have talked to in Colorado have shown me the costs of an
examination of one kind and what their reimbursement is. My fear
is we are going to have more and more physicians drop off, and we
are going to reduce the assistance to the people who are going to
' provide the service to these individuals. As a matter of fact, it is
I against the law, but a lot of their senior patients know that this
I rate difference is there, and they want to pay their doctor cash to
I make it up so that they will keep seeing them. Of course, that is
! illegal, and no one I know is doing this.

This is a major concern of mine. Is this a concern here in the
State of Michigan?

Mr. Smith. What is our concern is that pajnnent rates have not
kept up with the rate of inflation. I have a chart which shows how
Medicaid charges as a result of what doctors charge has changed
I over the last 10 years. Ten years ago our payments were about 60
j percent of what physicians charged. Last year it dropped down to
i 36 percent. We just recently had a fee increase which would take it
I back up to around 40 percent. But still you can see there has been
a very significant drop in what Medicaid pays, not just in absolute
numbers, but relative to what the market is.
Mr. ScHAEFER. Do you have this fear that I do?
Mr. Smith. I think it is a very legitimate — it is not just a fear, it
is a fact. Physicians in various parts of the State have chosen to
I limit Medicaid practice, and in some cases departicipating com-
pletely from the Medicaid program because what Medicaid pays in
their view is not sufficient to cover their actual costs.

Mr. ScHAEFER. This Federal mandate situation, would you agree
or not that the Federal mandates imposed by us in Washington are
the most significant factors in these increasing costs?

Mr. Smith. There is no doubt about it. The mandates have in fact
increased costs. Again, I think the important thing to keep in mind
is that States are able to carry out the program, and some of the
mandates have been positive in their ultimate impact, but States
simply do not have the fiscal capacity to absorb the cost. That is
what the issue is.

Mr. ScHAEFER. I was in my own doctor's office not too long ago,
getting a physical exam and all that, and of course when we walk
into one, the first thing they say is, wait a minute, I want to talk to
you about something. They showed me the form which has to be
adhered to and filled out every time a patient comes in under this
particular program. It is astronomical, and if there is one mistake
made, they are in violation of the law. Has this been a common
I concern here, too?

Mr. Smith. There is a lot of concern nationally about what I will
I call a common claim form. There are about 1,400 different insur-
j ance companies and health plans, many of which have different
j health forms. We do need to have some commonality here. In this
I State we have worked very carefully with Blue Cross, Medicare
I and Medicaid, which together have the vast majority of the busi-
ness, and we have reached commonality of the forms. But it is an
important issue in terms of minimizing the administrative costs of
the providers.

118

Mr. ScHAEFER. As these mandates have increased, Federal funds
have decreased, is that correct, in most cases?

Mr. Smith. Federal funds have not kept pace with the demands,
that is correct.

Mr. ScHAEFER. So this leads you into sort of a problem here, as
well as in other States?
Mr. Smith. That is correct.

Mr. ScHAEFER. Let's get to the drug rebate issue. You said that
the Federal Government's so-called drug rebate program was de-
signed to save money, but has actually cost the Medicaid program
more money. You cited a large number of administrative problems
with it. Are you saying you believe this will cost you more because
of the administrative burden, or you can call it the hassle factor?

Mr. Smith. The hassle factor is a mess. We have got new author-
ity to obtain new staff through the legislature in order to adminis-
ter this. I think it is very important, and Congress was on the right
track trying to control drug costs, which have been one of the fast-
est rising components of Medicaid and other health programs
across the country.

In the effort to try to get Medicaid a best price, there have
been — there were conditions placed on that, which limit a State's
ability to control the costs in a most effective way, to look at what
are the most effective pharmaceutical products that could be cov-
ered, to look at appropriate utilization controls or prior authoriza-
tion techniques that may be appropriate to specific products. All of
those options have in essence been taken away by this new con-
straint associated with the drug rebate.

Don't get me wrong, the drug rebate will be significant, in this
State possibly $30 million a year return to the State, 95 percent of
which will be shared back with the Federal Government. But it
is — the strings attached to it do create quite an administrative
hassle.

Mr. ScHAEFER. So the strings attached to it is not allowing it to
work to the degree we would like it to work?
Mr. Smith. That is correct.

Mr. ScHAEFER. Mr. Chairman, I will pass it on now.

Mr. DiNGELL. Appropriate. The Chair recognizes now my good
friend from Michigan, Mr. Upton.

Mr. Upton. Thank you. Dr. Smith, one of my focuses as well as
the subcommittee's focus is ferreting out fraud, waste and abuse.
Last year we had some sterling testimony from the FBI, the Inspec- }
tor General of HHS, as well as other witnesses around the country, :
and I think it was even in the chairman's opening statement about
as high as 15 percent of Medicare/Medicaid expenditures are fraud- i
ulent. i

And as we have found out from our hearing last year, with |
regard to what the witnesses told us, the bulk of the Medicaid i
fraud has not been perpetrated by the participants of the program,
hut rather by physicians, even hospitals, large networks of pharma-
cies, drug diverters, ambulance service companies, a whole host of j
different associations who you might otherwise suspect on the sur- |
face. j

One of the things I am interested in, I know the subcommittee is \
as well, is what has Michigan done, what has the State of Michigan 1

119

done to identify, A, the cost, and B, what steps are being taken in
terms of cases? How do you go about determining the level of abuse
in the system, and what are some of the things you and the admin-
istration are doing?

Mr. Smith. Well, Congressman Upton, you are asking a question
about a very important part of Medicaid activity. Fraud and abuse
are two very difficult areas to get after and come to a specific
number to quantify.

I have seen estimates up to 15 percent. It doesn't matter what it
is, if there is anything at all going on, it is too much. We have a
number of efforts to try to identify it and put the information in
the proper hands so that prosecution or recovery or whatever the
appropriate action may be actually does take place.

There is a very organized, systematic process for analyzing
claims which come in— every claim that comes in is subject to ap-
proximately 400 edits through our system before it does get paid.
In the course of going through that process, the computer does a
lot of analysis and identifies situations which may appear to merit
further review.

We have staff which take a look at that and, through that proc-
ess, a number of situations may result in further investigative
review and action. At the same time, a lot of the information
comes to us by way of phone calls. Someone sees or becomes aware
of a situation, and they will call. We have toll-free hot lines for this
purpose and that information is passed along.

There is a special Medicaid fraud unit within the Michigan
Deputy Attorney General. We do have cooperative arrangements
with the DEA, the FBI, other major players such as Blue Cross, so
it is possible to take a look at it.

All I can say to you is it is a very important activity. It is abso-
lutely essential we identify and prosecute and control. There is so
much money involved in this program that sometimes people get a
little greedy. When that happens, we have to be able to identify it
quickly.

Mr. Upton. Are you satisfied with the degree of success the State
has had?

Mr. Smith. I think there is always room for additional success in
this area. We never seem to have as many resources as we would
like to have in order to identify what is out there. The cost-benefit
ratio — ^benefit-cost ratio is very high. The return is very high, given
the amount of resources we do invest.

Mr. Upton. One other area I would like to focus on in terms of
my questions: I travel around my part of the District; which as you
know is southwestern, south central part of the State. As I meet
with the medical societies, county associations, my hospital admin-
istrators, one of whom is here today; my nurses, patients, the level
of frustration is very high. Our family just had a new child and
Blue Cross-Blue Shield forms are something else to try to under-
stand, to figure out where you send them.

The level of frustration and the lack of standardization, whether
they be for an elderly person having difficulties to see the forms, or
perhaps even understand them, is the highest that I can imagine. I
would be interested in what steps you would encourage us to take
back with us. What are some of the steps you are trying to under-

120

take within the State, both to standardize those forms, to expedite
the payment to the individuals, because it is a nightmare.

I am a cosponsor of H.R. 2625. 1 don't know most bill numbers off
the top of my head, but I have received hundreds of letters from
physicians in my District. I imagine many of us on this committee
are also cosponsors on this bill to reduce paperwork burdens on
physicians.

As you look at a number of different proposals, pay or play.
Many of them in terms of a cost saving to have a standardized type
of form. What dramatic steps have you taken, and what would you
encourage us to do to try and achieve that same goal?

Mr. Smith. Again, we are talking about the possibility of simpli-
fjdng the administration. The cost of health care right in the doc-
tor's office, where the billing form is actually filled out, it has to be
very frustrating in a group practice of any size, you will have a
billing person that specializes in Medicare, another one specializes
in Medicaid, another specializes in Blue Cross, and another in
Aetna and Prudential.

It doesn't make sense. It would serve everyone's interest, provid-
ers and third-party payers, if we had a form that could be used by
everyone. A lot of resources have been put into this issue in the
past, and we have been frustrated because the needs of one third-
party payer for information or to have a particular form is such
that it might preclude the adoption of a form that might be useful
for other persons.

In the case of Medicaid, for example, the efficiency of our system
is dependent on having a form that is optically scanable so it can
be mechanically read and put into the system. A lot of the forms
that have been proposed so far have not been optically scanable.

I think technology is coming up to a point where we should be
able to take a look at it. We certainly support the principle.

Mr. Upton. Thank you. I yield back.

Mr. DiNGELL. The Chair thanks the gentleman. The gentleman
from Michigan, Mr. Conyers.

Mr. Conyers. Thank you very much. Chairman Dingell. I want
to welcome Dr. Smith, and indicate this is our very first and formal
way of meeting, and that you have figured into my work, my ap-
praisals and my dreams for much more than you know, sir. Now
we are together, and I am very happy for that, because in your
tender mercies lie the future of the North Detroit General Hospital
and Southwest Detroit Hospital.

I believe you have met the trustee of Southwest Hospital, Dr.
William Anderson, a good friend of both of ours, in trying to fash-
ion a way to pull Southwest out of Chapter 11. One of the ways
that John Gorman on my staff has recommended, is that if we
move toward this Federal qualified health center concept in an
effort to keep these facilities open, and if we can maintain their
hospital status and add this community health center concept, your
office would, of course, be very important in that effort. We are
grateful to have you here and to be working along with you on this
matter.

Problem: Even if we reimburse the Medicare and Medicaid pa-
tients at 100 percent of reasonable cost, as mandated by law for
these health centers, I have been told that you have some reserva-

121

tions about that as a practice, and I would like you to address that
at this point.

Mr. Smith. Sure. Thank you, Congressman Conyers. I do want to
say, first of all, we are very pleased to have a chance to resolve the
issues with North Detroit and South Detroit. We are happy to work
toward the resolution.

The issue which you raised with respect to federally qualified
health centers and the reimbursement which, let me say, the spe-
cial reimbursement provisions which were specified in OBRA 89 for
those community health centers, migrant health centers, rural
health centers that qualify at the so-called FQHC's, what Congress
did in that provision was to specify that these centers are entitled
to full cost reimbursement, unlike other Medicaid health care pro-
viders.

My concern is simply one, as a matter of health care policy in
general, we have been moving away from full cost retrospective re-
imbursement for all the other providers under Medicaid, because
the incentives of that kind of a system are not those which might
encourage economy and efficiency.

We would like to have a reimbursement system because it is one
of the most powerful ways we can bring about a cost-effective
health care system. We like to have a system which encourages the
efficient delivery of health care.

Our only concern has to do with that special classification of
them as being entitled to full cost retrospective reimbursement. We
have no qualms whatsoever of the mission and accomplishments of
federally qualified health centers. They are doing a great job serv-
ing the poor and low-income populations of this State. I believe
there are 22 such centers currently qualified, and anything we can
do, again, to support them we are happy to do. That is the only
concern. That is the law, and we are happy to comply with the law
as it is right now, and we are doing so.

Mr. Conyers. As one of the supporters of that provision, may I
respectfully point out to you that that incentive was built in be-
cause we need these centers so desperately. There is an absolutely
urgent need in rural and urban areas to do that, and that is why
we made this the only exception in Federal health regulation and
policy.

Now that we have breached that, here is the next problem in
this possible reconfiguration at these facilities. If you come into,
let's say, this prospective new health center arrangement at these
facilities, and you don't have Medicare and you don't have Medic-
aid, which 60 percent of the eligible don't have, then guess what?
We are building a grave site over this community health center,
because many, if not most of the people, will come in uninsured,
uncovered by these two modest provisions.

And it is there I have begun to sleep less comfortably in my bed
at night. I mean, we take a hospital that is in Chapter 11, such as
North Detroit General or Southwest. We resurrect it as a commu-
nity health center under the Federally Qualified health center stat-
ute, and then we find out there is a big financial gap here because
the people pouring in don't have anything to pay — 100 percent of
zero is still zero.

122

And so, you know, I am wondering if in our legislative brilliance,
we are leading two hospitals in desperate circumstances down an-
other path in which they are going to get in trouble. I need you to
worry with us about it, because it is unfair to be just leading them
from one dead end to another.

Mr. Smith. Congressman, we will be glad to work with you and
the hospitals and the U.S. Public Health Service, which has some
authority over qualifying these as well.

Mr. CoNYERS. Now, with reference to fraud. You know, it is
funny now, and I have to speak frankly to you about this. I work a
lot on anti-drug efforts with the so-called anti-drug czar in Wash-
ington, and I have been chairman of the Criminal Justice Subcom-
mittee in Judiciary, as well as the Crime Subcommittee at different
times.

Twelve percent of the drug users, according to our national gov-
ernment, are minorities, but 40 percent are the ones being pros-
ecuted. I am beginning to wonder if this disparity doesn't translate
into the question of Medicaid fraud. We have to keep the questions
of race very much in front as we move in on these malefactors.

We have got a young female African-American doctor that, as of
less than a few weeks ago, was sentenced to 12 years in prison. I
thought she would be at this hearing to hear our concerns about
her case and this problem, but Dr. Robertson is no longer a citizen
with rights. I wanted to bring your attention to the growing
number of complaints that I am receiving, naturally, about the
Medicaid providers, many of whom are minorities, out of the neces-
sity of the reality, who will be prosecuted on very minuscule com-
plaints, trivial amounts of money, misfilings under lots of paper-
work, and I need to make sure we are sensitized and work on this.

I understand we are bringing in 50 more FBI Agents to prosecute
Medicaid fraud. Well, if they are going to be squirreling around
looking into the inner city at doctors that are so weighted down
with Medicaid cases that they can hardly continue to practice, we
are going to miss the boat where the really serious cases and much
greater amounts of fraud are occurring — and I am not trying to ra-
tionalize small amounts of fraud.

Any violations of our laws are violations of our laws. But when
the emphasis appears to be misdirected upon minority practition-
ers and pharmacists, we have a problem. Has this been brought to
your attention before this point?

Mr. Smith. Congressman Conyers, actually, it was just 1 or 2
weeks ago this issue was brought to my attention. It caught me by
surprise at the time. I had always been aware, or it was my under-
standing our identification processes for looking at who we would
investigate were totally colorblind.

I simply asked my people, could there possibly be any basis to
this suggestion there would in any way be any consideration of mi-
nority status or any other kind of status, and I was assured — they
were surprised as I that such a suggestion might have been made.

I can't — as I understand the system, I can't imagine how this
kind of bias might creep into it, but I am certainly happy to take a
further look at it, if that would be helpful. The — our resources are
so limited, as I suggested before, in looking at the whole area of
fraud and abuse that there is no way we are going to focus our ef-

123

forts where it appears that it might be unproductive. So I am a
little surprised by the suggestion that this may be going on.

Mr. CoNYERS. Well, I know people are always taken by surprise
by the ugly face of racism in America, particularly inside our own
government. Unfortunately, I have spent more than two decades
working on that. But I have a report on this that I will begin to
acquaint you with. It was prepared by Dr. Norman Clements, a
professional person who himself has been the object of what were
claimed to be unfair investigations into Medicaid health care pro-
viders.

Finally, are you aware of the GAO study that I initiated on the
Medicaid third-party reimbursement problem with Michigan Blue
Cross-Blue Shield?

Mr. Smith. I am.

Mr. CoNYERS. You are aware of this problem. Could you give us a
capsule report on how the question of the millions of dollars of re-
imbursement due to the Medicaid program are involved there, and
how it is coming along under your command. I realize you have
only been in this capacity for a relatively short period of time.

Mr. Smith. I will be glad to bring you up to date. The issue here
is finding a way to make sure Medicaid only pays what it is respon-
sible for. Where there is a third-party payer, such as Blue Cross,
who has primary responsibility. Medicaid is the last payer, last
resort.

The issue here, I believe, if I can summarize it briefly. Blue
Cross-Blue Shield of Michigan is the major payer in this State, so
as it turns out, a significant number of not large — a significant
number of Medicaid patients have dual coverage under Blue Cross
and Medicaid.

The Blue Cross coverage may come about because the father,
before a divorce, is employed by Greneral Motors, for example, and
as part of the court child support order, the health care coverage is
continued while the child is a minor.

We have worked with Blue Cross to — in every way possible, and
as you suggested before lunch, including lawsuits, to try to make
sure that the Blue Cross liability is fully paid.

We have had in the last 2 months formal correspondence be-
tween Mr. Whitmer, the President of Blue Cross-Blue Shield, and
Dr. Miller on this subject. We have recently been able to acquire
the reports which we had been expecting last since last fall. We are
in the process of looking at those reports, and to make sure the full
and complete Blue Cross liability is, in fact, paid. We will be work-
ing with the Auditor General in this State to make sure what we
have is exactly what we need, and it has been processed correctly.

Mr. CoNYERS. I thank you very much. There was always the com-
puter problem, which I found an incredible alibi. It was explained
to me that the Medical Services Administration didn't have the ca-
pability to put together a computer that could track the costs,
which even as a computer-illiterate Member of Congress, I found
disturbingly unrealistic.

I had people piously come into my office more times than I care
to tell you about sajdng that as soon as you get the computer, this
is going to be simple. And I am almost afraid to ask you if you ever
got the computer, but I am going to ask you an3rway.

124

Mr. Smith. We have a problem of one computer talking to an-
other, one talking the same language as another. We have different
kinds of computers between Department of Social Services and
Blue Cross. Therein lies a serious issue. We have worked out these
problems.

Mr. CoNYERS. The chairman is raising his gavel. I don't know if
it is to strike me or tell me the time is up. I yield back the balance
of my time. Thank you, Mr. Chairman.

Mr. DiNGELL. The Chair thanks the gentleman.

Doctor, as you stated, Michigan is not alone in fighting Medic-
aid's biggest single drain on its budget. You specified you reduced.
You also testified there has been significant reductions in the fund-
ing levels to a number of Medicaid programs, and a number of
these funds include some key preventive programs for both chil-
dren and adults; for example, 60,000 low-income children no longer
have access to health screenings, including immunization, hearing
and vision tests, and psychological assessments. Is that correct?

Mr. Smith. Mr. Chairman, that which you are referring to would
be the EDSPC outreach, the early periodic screening diagriosis and
treatment program is an important component of Medicaid pro-
grams across the country. It specifically serves children, and it is
designed to do exactly those things which you just described.

Outreach is a mandatory portion of that program, meaning
making children and their parents aware of the program, making
sure they — arranging transportation as it may be necessary. There
are many ways to carry out outreach.

One of them has been a contract with the Department of Public
Health which has been in the amount of $5 or $6 million through
which they would arrange scheduling and transportation and so on
for the children to come in.

There has been a fear which has not yet materialized to the
extent you just described, that because the outreach funds were not
there, that people would not be able to come in. I have seen an esti-
mate of the size you just mentioned of 60,000 not being able to
come in as a result. The benefit is still there. That has not
changed.

What has changed is the ability — the capacity to reach out and
find these children who are eligible and to assist them in making
sure they do keep an appointment and they get the follow-up serv-
ices which they need.

Mr. DiNGELL. Now, Doctor, prior to these cuts, Michigan had
been one of the country's leaders in covering optional Medicaid
services, was that not so?

Mr. Smith. Michigan covered a few more than the national aver-
age. There are 33 optional services, Michigan covered 27 of them. I
think the most any State covered was maybe 30 or 31, but at the
current time, we are pretty close to the median of all States, which
is 24.

Mr. DiNGELL. Now, optional services included such things as
oxygen, durable medical equipment, vision and dental services,
nonambulance medical transportation, physical occupational
speech therapy, hospice care, and in some instances, substance
abuse programs, podiatry and chiropractic; is that not so?

Mr. Smith. That is correct.

125

Mr. DiNGELL. Are those eliminated?

Mr. Smith. No, they are not eliminated, all of them, but the list
which you just described is a list which was part of the budget dis-
cussions in the Michigan Legislature.

Representative Hollister would have been in a better position to
describe the discussions that took place in the legislature. The
elimination of those services was part of the executive budget
which was proposed last September and adopted by the legislature
last September for our fiscal year, which began on October 1st.

It turns out that after that budget was adopted, we took a look at
that because we wanted to be sure we covered as many of the serv-
ices that could be within the funds that were in fact appropriated,
and we made a decision to include all of the services as continued
coverages, with the exception of dental services, podiatry, chiro-
practic, EDSPC outreach, and some substance abuse services that
had been provided in acute setting.

With those exceptions, the services did continue, including such
things as durable medical equipment, oxygen, wheelchairs, and so
forth.

Mr. DiNGELL. Now, you referred to HCFA's waiver process. I
would like to hear your thoughts on that. We may have to write
you a letter in view of our time constraints to ask you additional
questions about that. But that has been a significant problem for
us here in Michigan, has it not?

Mr. Smith. The waiver process, Mr. Chairman, has been very dif-
ficult for us in Michigan. We have prided ourselves as being a pro-
gram that tried to be innovative and forward-looking to take ad-
vantage of the latest policy directions so we could have as tight a
program as possible. To do that, you need to have waivers.

Notwithstanding HCFA's assurances over the last several years
that the waiver process would be streamlined, the fact of the
matter is that we have literally spent hundreds, probably thou-
sands of hours trying to get waivers in order to carry out these pro-
grams, the home-community-based waivers, waivers that allow us
to do managed care, waivers that would allow us to serve Medicaid-
eligible patients in their home instead of in institutions, things
along that line. And the process is simply very, very obtuse.

One of the things I would suggest for the committee to look at is
whether some of these programs which currently require waivers
and have been documented as effective and useful programs in
State after State shouldn't just be optional coverages under the
program so the State could opt into it if they so chose, as long as
they met certain criteria.

Mr. DiNGELL. Could you give me a more amplified statement on
that particular point about converting many of these from waiver
programs to optional programs?

Mr. Smith. I would be pleased to submit that.

Mr. DiNGELL. The gentleman from Colorado?

Mr. ScHAEFER. No questions.

Mr. DiNGELL. In the case of Oregon, Oregon wanted to go to a
new program which would deal with health care delivery to every-
one in the State. They sought to proceed under the waiver process.
Are you aware of how they succeeded or failed on that particular
matter?

58-688 0-92-5

126

Mr. Smith. Mr. Chairman, it is my understanding that that
waiver is still under consideration with HCFA, and a decision has
not been made yet to my knowledge. But it has been a long process
for Oregon as well.

Mr. DiNGELL. What do you think of the Oregon plan?

Mr. Smith. I give a lot of credit to the people of Oregon for
taking the time to focus on a way to more effectively deliver health
care, to try to find a way to look at that health care which is most
effective so that scarce tax dollars can be focused on those things
which are most needed and, at the same time, structure it so that
everyone up to the Federal poverty level would be covered.

I think that is a very commendable initiative. The fact that it
has involved such a broad spectrum of every interest that could be
identified within Oregon to be part of that process says to me that
the process itself has been very worthwhile and they have devel-
oped a proposed plan which meets the priorities, interests and
valuation of that State. And I would commend them for their
effort, and I wish them well. I hope very much it works.

Mr. DiNGELL. How is the waiver process working with regard to
this matter?

Mr. Smith. It is my understanding that the waiver process has
gone very, very slowly in my discussions with people

Mr. DiNGELL. Is it so slow as to create a problem?

Mr. Smith. So slow as to delay their proposed implementation
date, yes.

Mr. DiNGELL. Dr. Smith, the committee is grateful to you for
your very helpful testimony. We will probably have some questions
, by letter. If you would like, we would appreciate being able to do
that.

Mr. Smith. That would be just fine. Thank you for the opportuni-
ty to speak with you today.

Mr. DiNGELL. Thank you very much for your assistance. We ap-
preciate it very much. Thank you.

The Chair announces the presence of a valued friend and distin-
guished public official, Mr. Edward McNamara, County Executive
of the County of Wayne. Thank you for being with us today.

Mr. McNamara. Thank you.

Mr. DiNGELL. Mr. Conyers and I know of your many accomplish-
ments here in the County.

STATEMENT OF EDWARD H. McNAMARA, EXECUTIVE, WAYNE
COUNTY, MICHIGAN, ACCOMPANIED BY DEBORAH SCOTT

Mr. McNamara. Good to be here. I appreciate getting on as
quickly as this. I am not sure whether I am busy or disorganized.

Chairman Dingell and honorable members of the committee, I
appreciate your invitation to testify before the committee on the
state of our health care system in Wayne County.

As you examine the strengths and shortcomings of our health
care delivery system across America, no doubt you are learning
many of the lessons we have learned here in the Detroit area over
the past decade. The benefits of the world's finest medical care are
becoming available only to an ever-shrinking group of our citizens.
Despite skyrocketing health care costs, many of our health care

127

providers must still struggle to balance their bottom lines, and our
poorest citizens must struggle the most to achieve even basic levels
of health care.

In Wayne County, which is home to the City of Detroit and 42
other communities, we are well acquainted with all of these prob-
lems. Six years ago, health care costs nearly drove Wayne County
out of business. It is my hope that by sharing with you some of our
solutions to our health care dilemma, we may offer some ideas for
future remedies.

When I took office in January of 1987, Wayne County had a defi-
cit of $135 million, caused almost entirely by an inefficient system
of providing mandated health care to the county's indigent popula-
tion.

Under the old system, indigent persons in Wayne County were
ineligible for most types of medical care, except emergency room
treatment and hospitalization. Their treatment costs were fed into
the bureaucracy of our State government, which processed the
bills. Sometimes it took months, sometimes years, before compen-
sating providers and then passing the bills back to Wayne County
for payment.

Our system mandated that the County have no control over
treatment and no role in controlling costs. All we were allowed to
do was open our wallets and close our eyes. That system tripled our
health care costs in only 5 years.

Our solution, called County Care, is the result of taking back
control of our health care costs. Together with the State legisla-
ture, we were able to build what amounts to a county-run HMO for
43,000 poor people. Cost-controlling incentives for patients, for gov-
ernment and providers have been built into every step of the proc-
ess. This new emphasis on cost control has encouraged responsible
treatment.

Profits now come from preventive medicine, since we pay hospi-
tals $77 per month per person, whether that person has a checkup
or a triple bypass. And as we all know, it is cheaper to treat some-
one with medication for high blood pressure than it is to pay the
cost of emergency room treatment and a hospitalization for a
stroke victim.

The results: Preventive care is up, costs are down, our deficit has
been eliminated, and Wayne County has balanced its budget for
the past 4 years. And our coverage has not led anyone to stint on
care. In fact, preventive office visits have increased instead of
emergency room visits.

As a public official with an eye on the bottom line. County Care
makes me very happy. The program has received its share of
awards and received impressive bipartisan support from our State
legislature and Governor John Engler last year, at a time of severe
budget cuts across the State of Michigan.

We are working on ways to expand the program to cover the
County's working poor. We believe the program can be made at-
tractive to small businesses who, for minimal costs, will be able to
offer their employees an attractive benefit, paid health insurance.

As I said, we have learned from all of this. Our most important
lesson is that governments usually make lousy doctors. We only
have two cures for the problem of health care delivery. We either

128

expand our bureaucracy until the system dies of bloat and poor cir-
culation, or we panic and amputate every program in sight. In both
cases we forget there are live people at the other end of our deci-
sions, people who are sick and will only get sicker unless we help.

At Wayne County, our experience has taught us if you don't
manage your health care costs, they will manage you. Our old
system practiced management by default. Sickness forced hospital
visits. Legal obligations forced medical treatment. And blind bu-
reaucracy forced blind payments.

We decided not to put up with that bloat, and I honestly cannot
understand how government can amputate health programs. If we
cannot care for the least among us, how can we call ourselves civil-
ized?

I encourage this committee to give more thought to traveling the
same road we did, a middle road. Managed health care with a
strong emphasis toward preventive care and with incentives for
good performance by patients, providers and government has given
us good health care and a healthy bottom line.

I have enclosed a summary of our programs and welcome your
questions.

Mr. DiNGELL. Thank you very much. You have given us very
helpful testimony.

I would note your program is an extraordinarily fine program,
well run. What is the cost of that program per person?

Mr. McNamara. It is $77 per month per person. We negotiate for
a 3-year period. We have four health care providers, so there is
competition. If one provider says I can't do it for $77, we have
three others who say they can. It has worked very well for us. We
started out at $73 a month, and we have had a couple of increases
over the last 4 years and brought it to $77.

But again, we know what it is going to cost us, and these health
care providers know that if they can keep poor people healthy,
they are going to make more money and let those poor people
become ill and still only receive the $77.

Mr. ScHAEFER. Thank you, Mr. Chairman.

Mr. McNamara, prior to you coming in, I read your statement,
and am truly impressed with what you have been able to accom-
plish. You are to be commended.

I might follow a question the chairman asked; $77 per person.
What about a family? What about a family of four? Is there a re-
duced rate there?

Mr. McNamara. If they qualify as indigents, we pay based
upon — now, these people are all over 21 years of age, and they go
up to age 65.

Mr. ScHAEFER. I am just a bit confused, though. Are you still in
the Medicaid program?

Mr. McNamara. In the Medicaid program? Oh, yes. In fact

Mr. ScHAEFER. The reason I ask is, you were given, apparently, a
lot of leeway to get this all put together in such a new style.

Mr. DiNGELL. Will the gentleman yield?

The gentleman is giving the good news. Mr. McNamara is giving
the bad news. Bad news is this program is functioning pending the
request for a waiver. Fact is, this program is functioning with no
Federal funds at all.

129

Mr. McNamara. At this point, it is State and county funds, but
the State, because of its financial condition, is trying to move this
into a matching arrangement with Federal funds. Just as Pennsyl-
vania, for instance, has done.

Mr. DiNGELL. And you have a request pending for waiver at
PIHS?

Mr. McNamara. That is correct.

Mr. DiNGELL. If that waiver is not granted, what then happens?

Mr. McNamara. We are back to the State, because we have
43,000 individuals who have to have health care one way or the
other. We start a body count then, if the program dissolves itself.

Mr. ScHAEFER. As I say, we are talking about all the hoops and
hurdles that everybody has to jump through, following the Medic-
aid thing, and it seems to me you just completely revamped a pro-
gram. I was trying to figure out how you got through all these
hoops and hurdles. So it has been clarified to me now that you are
in for a waiver to HHS.

Mr. McNamara. We are now. I have to point out that the
County is not diminishing its role. It is not diminishing its contri-
bution. It is the State that is having a great difficulty with its
budget, so the State is using our dollars to match Medicaid dollars
in order to fund this program at the level the State has been fund-
ing it in previous years.

Mr. ScHAEFER. If you continue with what you are doing, they
could not pick this up in Lansing or in Ann Arbor, or anyplace else
in the State, as far as counties — I am not familiar with all your
counties, but

Mr. McNamara. Over half the indigents in the State of Michigan
reside in the County of Wayne. So when you take the other 83 or
82 counties, obviously the indigent population is very small, and
hospitals have less of a problem just absorbing that.

Mr. ScHAEFER. So they may not have the need. But can I go to
the city of Denver — and this is where our major population of indi-
gents is — and hopefully copy something of what you did?

Mr. McNamara. We would love to have you do it.

The other thing that is fascinating about this program, and I
point to people in my staff who have been developing this, is if we
want to do this for so-called underemployed, the working poor, we
believe that we can take this same program. And we realize that
the first step is to go to the providers and get them to agree to
reduce their costs.

But we believe that with a one-third contribution from the em-
ployer, a one-third contribution from the Federal Government or
the State government or local government and a one-third contri-
bution maybe from some source of taxation, that we could provide
this same kind of service for a large group of people out there
today that have no health care.

We believe, for instance, that for just a few dollars a month the
people working for Little Caesers could have health care, and this
would be an incentive to stay rather than if they develop an illness
or become pregnant to actually quit their jobs to become an indi-
gent so they can receive health care through this program.

Mr. ScHAEFER. Is this the first time this has been done?

Mr. McNamara. To my knowledge, yes.

130

Mr. ScHAEFER. Of course, we haven't thought about the Chicago,
Illinois area or any other large area, Washington, D.C. area, et
cetera.

Mr. McNamara. We did it because of crisis.
Mr. ScHAEFER. It is amazing what we can do when we are pushed
to the wall.

Mr. McNamara. We had $135 million deficit. We had absolutely
no way of resolving that deficit. We were running $50,000 a day
over budget just for health care costs when we took this program to
the State. The bureaucrats in the State level, probably, had there
not been a crisis, would not have supported us. They had the alter-
native of accepting this program or taking over the county of
Wayne and running it, and they weren't doing that great a job
with the State of Michigan, so it was very doubtful they would im-
prove on how the State ran.

It was a crisis and ending up with the county of Wayne giving us
the right to create county care. They gave us that right and it has
been extremely careful.

Mr. ScHAEFER. I hope once this has all been taken care of, and
your waiver comes through, you will share your information with
other people in other areas.

Mr. McNamara. Be happy to.

Mr. ScHAEFER. We have been discussing all morning the hard
times that hit Michigan in the 1980's, and certainly have come
along since then, and Governor Milliken and Blanchard endorsed
and funded the emergency programs to provide the food and shel-
ter to the needy. They also acknowledged the serious public threat
to the people who must go without food, shelter, and the tendency
of people without insurance to delay getting health care until they
get really ill, dangerously ill.

Vern Smith testified people of all ages without health insurance
do, in fact, go without the health care. It is understandable, even
with the small children getting vaccinated for the various problems
that we have.

Do you believe emergency programs since the one originally en-
visioned by Governors Milliken and Blanchard are needed now to
prevent costly and unnecessary illness while we decide what we are
going to do nationally?

Mr. McNamara. I think at present, most people who have a need
for health care, there is a way. Those that are outside of our pro-
gram that are outside of regular health care programs end up in
the cost of the automobile that gets delivered because of the unique
arrangement that Blue Cross, which is a major health provider,
has in setting up their charges. That is unfortunate.

I think that it is one of the reasons why we aren't competitive in
the automobile business, is because health care charges are so out-
rageously large and the indigent, the individual that can't be cared
for, is taken to a hospital; the hospital runs up the cost.

The hospital sends the cost to Blue Cross, and Blue Cross in turn
shares it with the county of Wayne and Ford Motor Company and
Chrysler, and all those other people. In the absence of this kind of
emergency plan that you have to make these dollars available, in
most instances these people are being cared for, but they are being

131

unfairly cared for. There is an unfair cost being shifted to the in-
dustry of this area.

Mr. ScHAEFER. We had the UAW and Chrysler in today, and that
was basically a message that came out. So I don't have another one
right at this moment.

Mr. McNamara. May I introduce Deborah Scott, who runs this
program, and has been doing a tremendous job. She does the work,
and I am taking credit for it.

Mr. ScHAEFER. Mr. Chairman, I yield back.

Mr. DiNGELL. The Chair thanks the gentleman. The Chair recog-
nizes the gentleman from Michigan, Mr. Upton.

Mr. Upton. Thank you, Mr. Chairman, and thank you, Mr.
McNamara, for bringing this to our attention. It certainly sounds
like it works and it works well. Both of you are to be commended
for the leadership you provided, certainly to this side of the State.

I have a couple of questions. How many providers do you know
that actually participate in the program? Do all of them partici-
pate?

Mr. McNamara. We took bids and selected four. We have the
program basically split up, roughly 10 to 12,000 indigents in each
one of these — with each one of these providers. They all agreed to
the same $77 per month.

Mr. Upton. But in terms of the hospitals or physicians that
might participate in the program-

Mr. McNamara. Deborah tells me we have 190 subcontractors,
but four basic providers.

Mr. Upton. You indicated in an earlier question that Pennsylva-
nia apparently has a waiver from HCFA?

Mr. McNamara. It is my understanding they do.

Mr. Upton. Do you know the history, why they have one and
why you have not been heard?

Mr. McNamara. No. I know we have run this program in the
past with State dollars and county dollars. The State has said they
no longer can afford it. Someone came up with the ingenius plan of
leveraging the county dollars with Federal dollars to fund the pro-
gram.

In the course of this, we were told Pennsylvania has been doing
it for years, we ought to be able to do it, too. So I don't know if that
answers your question. Can you add anything to that. Deb?

Ms. Scott. No.

Mr. Upton. How long has your request been pending?

Mr. McNamara. I would say not more than 30 days. Up until
New Year's, we weren't sure the State was going to fund this pro-
gram. We were in the process of making plans to close it down. We
had absolutely no way of funding the health needs of these 43,000
people until someone discovered the Federal leveraging aspect of it.

Mr. Upton. I appreciate your testimony. Thank you for sharing
that with the committee.

Mr. DiNGELL. The Chair thanks the gentleman. The gentleman
from Michigan, Mr. Conyers.

Mr. Conyers. Thank you, Mr. Chairman. I am always delighted
to see and hear from Ed McNamara, and I congratulate you on this
program. You cited bipartisan support that has helped you along

132

the way and out of the hole. Is the Attorney General of the State of
Michigan included in that bipartisan support package?

Mr. McNamara. Yeah, I think so. Frank is — hasn't given us

Mr. CoNYERS. A good friend of ours, but I have not heard any-
body use the Michigan Constitution as a basis for drawing a legal
conclusion in many years, many years.

Mr. McNamara. He really hasn't been involved.

Mr. CoNYERS. Well, he found it unconstitutional.

Mr. McNamara. Well, I think we have worked around that,
John.

Mr. Conyers. Not to worry?
Mr. McNamara. Not to worry.

Mr. Conyers. Well, I am glad to hear it. If you are not worried, I
am sure not worried. When I read about an Attorney General find-
ing a method that found State legislation unconstitutional, I am
worried until I hear from the Chief Executive.

Mr. McNamara. We asked Mike Dugan for

Mr. Conyers. Bernard Kilpatrick, out in the audience, just as-
sured me to relax, I don't have to pursue this line of questioning.

Mr. McNamara. Mike Dugan's opinion overrode the Attorney
General's.

Mr. Conyers. Do these things happen in local government?
Mr. McNamara. Oh, yeah.

Mr. Conyers. It has happened before. Now, this all goes together.
You know, we have got to worry about the larger picture. We have
got the national picture as well as our State and our city. At $77 a
month, what about the heart by-pass case or the person that costs
$78 a month or the person that costs $7,700 a month, because that
fits in, Mr. Executive, to a larger question.

You serve, and admirably so, 43,000 people in the county through
this wonderful program. Three hundred thousand people in De-
troit, part of your county, don't have a dime's worth of health in-
surance. Probably 100,000 more are seriously underinsured and
won't know it until the wrong health problem meets the doctor or
the hospital that they go to.

So I need you to expand with us the nature of the problem, be-
cause you can't mean that most people are being cared for, because
the only thing you can get without health insurance in America —
this has nothing to do with Detroit or Wayne County — is that you
maybe can get some emergency care if you are lucky; that is, you
can go to the emergency room at Ford and they will give you some
pills or something, but that doesn't have anything to do with treat-
ment.

We are working on a serious problem that we have been in since
1935, when Franklin Delano Roosevelt darn near put national
health insurance in the Social Security Act of that year. So I need
you to give us this broader picture for which I know you are good
for.

Mr. McNamara. One of the things this program initially had,
and still does have, is about $5 million that can be drawn on hospi-
tals to do things for those 300,000 you are referring to. What I
think this program has done for us is to prove that it is a workable
program that will make sense, and that for $70 to $85 a month, we
could take care of those people also by getting the providers to

133

extend the same kind of service to those other 300,000, if that is
the number.

What we are trying to do now is meet with these health care pro-
I viders to work out a plan where they — where they will cooperate to
J provide this service. We would then hope to start picking off em-
ployers who presently don't furnish health care insurance or
i health care of any sort, and involve them in the program.
I We think if this was mandatory — for instance, if the State Legis-
I lature would make it mandatory that all employers in the County
! of Wayne had to participate in a cooperative health care plan, that
we could actually save those health care — or those employers
money with this plan.

Mr. DiNGELL. I am trying to understand. The bounds of county
care geographically are outside the city of Detroit. In other words,
persons within the city of Detroit are not covered under this plan?

Mr. McNamara. Oh, yes. All 43 communities, including Detroit,
and the major portion of our 43,000 come from the city of Detroit.
Mr. DiNGELL. Thank you.
Mr. McNamara. Probably 80 percent of them.
Mr. CoNYERS. Well, in other words, you are advocating a local
national health insurance plan.
Mr. McNamara. Absolutely, absolutely. We think it will work.
Mr. CoNYERS. I think it will, too, on the national level, as well.
Mr. McNamara. What we would love to do. Congressman, is
I prove in Wayne County it can work, but we need some legislation
i and we need some sources — for instance, if we could get a nickel on
; a pack of cigarettes in Wayne County in the State of Michigan,
that would be the government's contribution.

Then we have the State's contribution, and we have the employ-
er's contribution. You put those three together, you can give as
good health care as those 43,000 people are getting today, and we
get very, very few letters from those 43,000 complaining about
health care, because there is an incentive for that health care pro-
vider to take care of that person. It pays them to go out and look
for them and find them and say, hey, you have high blood pressure;
we will give you a prescription to take care of it. They don't want
them coming back as a stroke victim because they only get $77 a
month, regardless.

Mr. CoNYERS. What part of your 43,000 are indigent, what part
are Medicaid, what part are Medicare, what part are private insur-
ance?

Ms. Scott. All of the county care recipients are indigent patients
j between the age of 21 through 64. Medicaid is a different program.
! This is one category, medical indigents in Wayne County.
I Mr. CoNYERS. No Medicaid, no Medicare, no private.

Ms. Scott. Absolutely.

Mr. CoNYERS. You are dealing with the most medically under-
served population in the city, the county, or the State.
Mr. McNamara. Correct.

Mr. CoNYERS. Now, this becomes a program that needs to be ex-
tolled. If you can provide them adequate care for $77 a month, I
need to be paying you a visit very, very shortly. But I thank you,
Mr. Chairman.

134

Mr. DiNGELL. The Chair thanks the gentleman. Mr. McNamara,
we have talked briefly about your waiver at HHS. You told my col-
leagues that it was filed about 30 days ago?

Mr. McNamara. I would estimate 30 days. It may be less than
that, Congressman. I have a meeting with the State Treasurer on
Tuesday to discuss some of the problems, apparently, that this has
run into. I really can't comment on it. I don't have any detail,
other than to know it does involve a waiver that we have never
asked for before.

Mr. DiNGELL. You and I have a very long and happy history of
working together on problems. I think the committee would like to
interest itself in your waiver and encourage a pattern of right
thinking at HHS. Can you give us a little appreciation of what
would happen if you don't get the waiver?

Mr. McNamara. The County of Wayne puts about $15 million, I
believe, into this program. That is what we put in last year, and
that is what we plan to put in this year. Even with that, we were
creating a reserve in case those 43 became 48,000, we didn't feel a
need we had to go back to the State or increase our contribution.

In the event this falls apart, this program would have to be
phased out. The County of Wayne — ^we say we balanced a $180 mil-
lion budget; we balanced it with $120,000 in the black at the end of
the year, so we really don't have any bucks to put into this pro-
gram.

In the event the waiver dies, the whole program will die. It will
be dismantled. As we told the Governor and the Legislature, we
will be talking about body counts shortly after that.

Mr. DiNGELL. How much longer can they continue to support this
program?

Mr. McNamara. 30 days.

Mr. DiNGELL. Do you have any problems in connection with this
on the part of the suppliers, with possible liability for malpractice,
or anything of that kind?

Mr. McNamara. Us?

Mr. DiNGELL. Is there a potential for a malpractice problem?

Mr. McNamara. We have not had that problem. Of course, we
have a provider that stands between us and the patient.

Mr. DiNGELL. I am aware of that, but does the provider have any
problems you are aware of?

Mr. McNamara. To our knowledge, none. We have other provid-
ers that would like to get into the plan.

Mr. DiNGELL. The Chair recognizes the good friend from Colora-
do.

Mr. ScHAEFER. What about AIDS patients? Do you handle those?

Ms. Scott. AIDS patients are eligible for county care until a
point in time in their illness when they are deemed disabled by the
State of Michigan. At that point, there is a process to transfer
them to the Medicaid disability program. We take care of them as
soon as they are HIV-positive and for some part, sometimes more
than we feel we need to take care of them during the disease proc-
ess itself. Once they are disabled, unable to work or will be dead in
a year or less, they are to be transferred to the Medicaid disability
program.

Mr. ScHAEFER. Where would that be? Transferred

135

Ms. Scott. It is a process that occurs — the hospital helps fill out
an application or the patient can go to the Department of Social
Services and the paperwork is completed by the workers, doctors,
physicians caring for the patient. It is sent to the State, the State
evaluates it and determines whether or not that patient is eligible
for Medicaid due to their disability.

Mr. ScHAEFER. This has been worked out with your providers, as
far as having no problems with AIDS patients.

Ms. Scott. This is a standard process that existed before county
care. This is something we have educated the provider network re-
garding how to do this and how to do it the quickest way possible.
It is a process we would like to improve, in some cases, but for the
most part, that is how it happens.

Mr. ScHAEFER. One other question. You testified, Mr. McNamara,
the larger portion of indigents are in Wayne County, when you
look at the whole State. What about — and I kind of asked the ques-
tion, but Mr. Conyers hit it.

OK, we have a national health care plan, but it is really within
the county. Would you adopt this same thing in some of the
other — Lansing or Ann Arbor or where some of the other gentle-
men are, even though they have a smaller portion?

Mr. McNamara. I think it would work as well. Again, I think if
you take some of the counties in Michigan, Schoolcraft County
might have two indigents; Washtenaw, an indigent is a kid that
only has two bicycles.

Mr. Schaefer. I understand. We are not talking about the four
or five. You said — how many percent was in Wayne County?

Mr. McNamara. I would say probably 50 percent.

Mr. Schaefer. You are taking that other — I don't know what is
in Lansing or Ann Arbor.

Mr. McNamara. Saginaw, some of the counties — Flint would
have some where this program would work well. Perhaps Grand
Rapids, Congressman can't.

Ms. Scott. It is proposed in the new legislation that any county
choosing to set up a model such as what we have done in Wayne
County has that opportunity. Genesee County has expressed an in-
terest, and we are currently educating some of the administration
there as to how they could do it.

Being a managed care program, it is important that you have at
least 10,000 recipients. Mr. Conyers asked about the $77, how does
that work? Some people never show up and the provider still gets
that $77. Some people show up and will utilize maybe $10,000.
They take theirs and a whole lot of other people's $77.

The concept is, there have to be enough people nationwide, and
according to the professional, it needs to be at least 10,000 people
for that to work. We do consider ourselves a model. We can be du-
plicated in the State, in other counties or as a national model, of
course with adjustments that need to be made according to the
locale and the different needs in that area.

Mr. DiNGELL. The Chair thanks the gentleman. Mr. McNamara,
it has been a privilege having you here before us. Good to see you
again as a personal friend. We are always delighted to see an old
friend like yourself today.

Mr. Conyers. We won't ask about the baseball stadium.

136

Mr. DiNGELL. Ms. Scott, we thank you for your assistance here,
too. You are doing remarkable work.

Mr. DiNGELL. The Chair announces, to the vast surprise of all in-
cluding the Chair, we are proceeding on schedule. The Chair an-
nounces that our next panel is a panel composed of Ms. Susan
McParland, staff attorney, Michigan Legal Services; Dr. David Ada-
many, president, Wayne State University; Mr. James Foster, ad-
ministrator. Three Rivers Area Hospital, St. Joseph County.

Ladies and gentlemen, we are deeply appreciative of your being
with us, and thank you for your assistance. To you. Dr. Adamany,
we want to express our particular thanks for your hospitality today
and making available to us the services of the university. You and
your staff have been of extraordinary assistance to us, and we
thank you.

We will start with Ms. McParland. We thank you for being with
us.

STATEMENTS OF SUSAN K. McPARLAND, STAFF ATTORNEY,
MICHIGAN LEGAL SERVICES; DAVID ADAMANY, PRESIDENT,
WAYNE STATE UNIVERSITY; AND JAMES R. FOSTER, ADMINIS-
TRATOR, THREE RIVERS AREA HOSPITAL, ST. JOSEPH COUNTY,
MICHIGAN, ACCOMPANIED BY ROBERT McDONOUGH, BOARD
MEMBER

Ms. McParland. Thank you very much. Chairman Dingell, for
this opportunity. I am Susan McParland. I am staff attorney at
Michigan Legal Services here in the city of Detroit. I wanted to
thank the committee for the opportunity to testify and to submit a
written statement on issues of such enormous importance to the
poor and disabled citizens in Michigan.

Our office, I would like to say, is uniquely suited to discuss the
details of the budget cuts in human assistance programs in Michi-
gan and to relate the consequences of those cuts for hundreds of
thousands of residents. Our role is lead counsel in virtually every
lawsuit filed in 1991 and now in 1992, challenging the reductions in
the budget for Michigan Department of Social Services, gives us a
singular perspective, and as counsel for plaintiffs in plaintiff class-
es, we have, of course, very detailed knowledge concerning the ef-
fects of these cutbacks on those individuals.

The theme of my testimony is that the health care needs of
Michigan's impoverished, disabled, elderly and young are not being
met in the present circumstances in which benefits, emergency as-
sistance, and State medical care reductions result in deprivation of
basic needs, including important health care needs.

Contrary to some of the prior speakers, I would like to point out
that the health care needs around this State are not being met, not
only because the basic health care programs are not providing
those services, but also because you cannot view health care in iso-
lation. The inevitable consequences of long-term deprivation of this
nature and degree poses a threat to the public health and welfare
when the enormity of the reductions and their effect on low-income
people is weighed and the full implications considered.

A compelling basis exists for stating that a human emergency
exists in this State. Contrary to myth, the emergency is not limited

137

by geography, age, race, or gender. And in a recessionary time, the
wisdom of drastically cutting back on human services is highly
doubtful.

Moreover, the established health care systems, like Medicaid,
cannot possibly address the crisis in physical and mental health ef-
fectively when thousands of Michigan citizens are facing homeless-
ness and destitution. More specifically, hundreds of elderly disabled
are being forced to stretch their prescription medication because
the State medical care programs fail to provide adequate payment
for those medications.

Executive McNamara discussed the highlights and good points of
the Wayne County care system, and I would just like to add, al-
though that is a very laudable program, that is limited to Wayne
County. All throughout the rest of Michigan, indigents who are not
receiving cash assistance are receiving very, very limited medical
care.

Far from being anecdotal, the scores of declarations which we
have collected throughout our lawsuits, many of which I have in-
cluded in attachments to our written statement, which depict the
horrors experienced by the poor and disabled during the last year,
these are representative, not anecdotes, and they represent the
crises and abuses being heaped on the most vulnerable in this
State. These stories are a vivid and accurate illustration of the
ways in which the policy changes in cutbacks are affecting Michi-
gan's poor, and sadly, they are not anomalous.

My written statement includes a great deal of detail describing
the reductions in welfare programs, policy changes and descrip-
tions of the litigation and policy advocacy our officers and others
have undertaken in the past year to ameliorate the harm. Here, I
would like to describe the current affairs in terms of the assistance
programs in Michigan and how they are affecting — those cuts are
affecting some specific individuals.

Yesterday, February 27, our office filed a lawsuit — another law-
suit against the State on behalf of several classes of individuals,
challenging the restrictions and procedural barriers in three very
critical State-funded programs in Michigan; those include the State
Disability Assistance Program, the Emergency Assistance Program,
and Indigent Medical Care.

The State Disability Assistance Program, which was created in
October of 1991 to provide continuing care for disabled people, is
serving only 7,500 people in this State at present, whereas as many
as 40,000 or 50,000 are potentially eligible, but because of procedur-
al barriers, and a rigid definition of disability, those people are not
receiving cash assistance.

Many people here, especially from Michigan, are probably famil-
iar with the story of the woman who was featured in a Free Press
editorial a couple of weeks ago, who was turned down for the SBA
program and told that her blood pressure was quote ''not high
enough to qualify." Two weeks later, she suffered a stroke and was
hospitalized. Following being featured in the Free Press editorial
and named in our lawsuit, she was finally qualified as eligible for
SBA benefits.

Similarly, Ms. Victoria Goad, whose affidavit is also included in
the attachments, is a 61-year-old woman who suffers from hyper-

138

tension, diabetes, uterine tumors and a variety of other ailments.
She has waited over 5 months to qualify for SDA. During that
period, she has been without any assistance. It is only after testify-
ing in the Michigan State legislature and being named as a plain-
tiff in our lawsuit that she was qualified for SDA benefits.

The stories go on and on in the Emergency Assistance Program,
which is a joint Federal-State program designed to provide assist-
ance to low-income persons facing emergencies ranging from delin-
quent health payments to utility payments, to prevent termination
of utility services.

The State's recent — and by recent, I mean December of 1991 —
revisions in this program result in the virtual exclusion of every
applicant, and benefits so low that the emergency they are facing
cannot possibly be addressed.

I would like to give the committee one example, the case of
Robin Esse, whose declaration is also included in the written mate-
rials. Ms. Esse is 35 years old. She suffers from life-threatening dia-
betes and very severe depression, so severe she has been hospital-
ized numerous times for suicide attempts.

She receives $425 per month in side benefits. Despite the fact
that she pays a modest rent amount of $200 per month, she can no
longer qualify for any emergency assistance from the State of
Michigan to help pay a delinquent water bill because her rent ex-
ceeds $160 per month, which is the maximum allowable rate for an
individual in Michigan to qualify for emergency assistance.

That policy obviously has an impact on her, and thousands of
other people whose rent obviously exceeds $160 per month. The
changes in the emergency needs program which I have included in
great detail in the written statement on these changes virtually
precludes thousands and thousands of people from desperately
needed emergency assistance.

The third program, the indigent medical care program, is a
State-funded program that previously provided indigent medical
care to general assistance recipients in this State. The current
structure of that program is a two-tiered structure, and if an indi-
gent person is not receiving a cash assistance benefit, that is, eligi-
ble for the SDA program or family assistance, they are only eligi-
ble for a very limited medical care.

So in the case of two of our named plaintiffs in the lawsuit we
filed yesterday, Vernon and Mary Faircloth, they are not eligible
for SDA despite suffering from numerous ailments. They have
waited for 6 or 7 months to have their application turned down,
and they both require numerous medications each month.

They have to pay a copayment for those medications under this
medical care system of $14 per month, out of zero income. They
have been told by their worker that they ought to collect pop bot-
tles to raise the amount. Every month since October they have
gone to local charities and churches to raise the money. So far,
they have been successful doing that. However, obviously that
places enormous stress on them.

Further, the case of Eva Fredericks, and I think if anything
points out the disparity between health care delivery, this case
does, and this also illustrates how people out of State are not being
served. Their medical needs are not being served and not being ab-

139

sorbed, because there are so few number of indigent people out of
State, not being absorbed by the mainstream medical system.

I am sure many people are familiar with Ms. Fredericks. She is
the woman who skipped her heart medication following the cuts of
October 1st last year, because she knew the following month the
State would not be paying for it. She suffered a stroke as a result
of this, and died several weeks later.

These are the sorts of horrors that are resulting directly, not in-
directly, but very directly, from the reductions in these programs
and the scope of services. Although litigation and advocacy may re-
solve some issues in these programs and some of the problems, it is
clear by now that those measures cannot ameliorate the wide-
spread emergency in this State.

It is also crystal clear that private agencies and charities, con-
trary to the assertion of the administration in this State, cannot
fill the gap. In the short term, there has to be a way that the Fed-
eral Government can address delivery of emergency relief to this
State.

Also, I have discussed the issue of the enforcement of the Medi-
care Catastrophic Act and the 1988 rollback provision in my
papers. It is clear that the State of Michigan is benefiting from
very large sums of Federal match money in the Medicaid program.
However, I think it is inappropriate for the State to come to this
committee with a wish list for Medicaid enhancements when they
were not willing to pay and to support the basic human services
programs in this State, without which the health of thousands of
people in this State is undermined.

Those are the sorts of things I would recommend, and I thank
you for the opportunity to testify, and I welcome any questions.

[Testimony resumes on p. 230.]

[The prepared statement and attachments of Ms. McParland
follow:]

140

Testimony Submitted By
Susan K. McParland
Staff Attorney
Michigan Legal Services
Detroit, Michigan

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Subcommittee on Oversight and Investigation
of the Committee on Energy and Commerce

February 28, 1992

Michigan Legal Services is the state support center for legal services in Michigan. Our
office addresses issues affecting low-income persons on a statewide basis through class-wide
litigation, policy advocacy, legislative representation and assistance to local or neighborhood
legal services programs. We believe that constant communication with legal services advocates
and policy makers has always given us a good sense of problems in access to adequate health
care, and adequate government benefits and other emergency assistance programs.

Our role as sole or lead counsel to plaintiffs and plaintiff classes in virtually every lawsuit
filed during 1991 and 1992 challenging budget cuts in essential human services in the State of
Michigan Department of Social Services makes our program uniquely suited to discuss the
details of the reductions in assistance programs, the impact of the reductions in programs already
underway, and the likely impact of the reductions if the situation continues unabated.

In response to the Sub-Committee's invitation, I prepared testimony and a written
statement addressing the question of the consequences of the State of Michigan's welfare cuts
on the ability to provide health care through established programs, such as Medicaid and impact

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of the reductions on the public's health and safety resulting from the lack of adequate housing,
utilities, food, and other essential services. It is in the context of the latter inquiry that the full
implications for public health and welfare and the threats posed to the physical and mental well-
being of hundreds of thousands of residents is clarified. The immediate consequences of these
reductions presents a compelling basis for stating that a human emergency exists in the State of
Michigan, nevermind the inevitable effects of long-term deprivation on significant numbers of
persons many of whom are extremely fragile, physically or mentally disabled, or very old or
very young.

I also wish to pass on the observation that the policies resulting in reductions in welfare
benefits and emergency assistance in Michigan differ from other recent welfare reforms or
cutbacks in this state or in the federal government. There is a mean-spiritedness in motivating
these policy decisions which is especially shocking in a state like Michigan which has such a fine
midwestem tradition of providing human services to its poor and temporarily disadvantaged
citizens.

To substantiate these allegations, I have included in the attachments to this statement, a
number, although a small fraction of declarations of plaintiffs and or class members in various
lawsuits who are directly affected by cuts in cash assistance, emergency assistance or medical
assistance programs. (Declarations "A").

Responses to many of the very specific questions raised by the committee concerning
aspects of Michigan's Medicaid state plan are included also in this written statement.

The theme of my testimony is that health care needs cannot be met under the
circumstances in existence in this State where essential services are not being provided to

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hundreds of thousands of the State's poorest and most vulnerable residents.

Assistance programs were established and exist to address the needs of low-income or
impoverished individuals and families whenever they arise. Secondly, welfare programs serve
a related function by expanding to prevent disaster to individuals and families when an economic
downturn reduces employment. Historically, the welfare rolls rise as unemployment increases
suggesting that human services should be increased not decreased in a recessionary economy.
The fact that Michigan's administration chose to drastically reduce basic and emergency
assistance programs during an economic downturn greatly exacerbates the dilemma faced by
poor persons, the elderly, and persons with disabilities and the unemployed in this State.

BUDGET CUTS UNDERTAKEN BEGINNING IN JANUARY, 1991,
ACTIONS TAKEN BY MLS AND, IMPACT OF THOSE CUTS
ON THE POOR IN MICHIGAN

In January, 1991, the Depanment of Social Services began developing its proposed
cutback plans in response to the Legislature's recent enactment of a supplemental appropriation
which provided in part for 9.2% annualized reduction in spending. 1990 PA 357. Although
it was clear by the fall of 1990 that the State of Michigan had a large budget deficit, the newly
elected Governor's response to the deficit included plans which reduced DSS' budget
disproportionately and resulted in permanent restructuring of the eligibility criteria for benefit
programs, covered services and the elimination of many programs and services.

The Director of DSS' initial plan for cutbacks was rejected by the House Appropriations
Committee triggering the so-called automatic line item reductions provision in PA 357.
Contrary to assertions that DSS' plans for implementation of the reductions were even-handed.

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the plans finally put in place reduced benefits and services disproportionately and eliminated
some services altogether. A few examples follow:

• Elimination of the Licensing and Regulation Division with
responsibility for regulating and licensing day care centers and in-
home child care arrangements; and sole responsibility for
investigating allegations of child abuse and neglect occurring at
child care centers. (Restored after litigation was filed).

• Rateable reductions of 17% in AFDC and General Assistance
payments, and approximately 40% in SSI state supplements.

• Complete elimination of Chore Services for the adult Home
Help unit for the elderly and disabled.

• Restriction of durable medical equipment including wheelchairs
and prosthetic devices to individuals who need the equipment to
prevent death or immediate institutionalization.

• Reduction in contract funds to emergency food providers and
emergency shelter providers.

• Reductions in several emergency needs benefits and complete
elimination of payment for delinquent water and sewerage bills.

• A ratable reduction of 13.4% in benefits to participants in Job
Start reducing their benefits from $253 per month to $219.

In February, 1991, MLS along with the United Auto Workers (UAW), Michigan
Association for the Educations of Young Children (MAEYC), Westside Mothers, Capuchin Soup
Kitchen and Michigan Fair Budget Coalition, filed suit challenging the constitutionality of the
statutory provision which mandates the reductions and the proposals developed by DSS
implementing the cuts. Plaintiffs alleged that the provisions and actions taken by DSS to
implement the provisions constituted an unlawful delegation of legislative authority to the
executive departments to develop plans to implement the cuts. Plaintiffs alleged Defendants'

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proposals violated various federal and other state laws. Michigan Education Association for the
Education of Young Children, et al. v State of Michigan, et al. Wayne County Circuit Court,
No. 91-104221-CL.

The harm showed by the plaintiffs at trial included the following:

• 32,000 households lost vendor shelter on 3/1/91
because not enough left in their grants after 17%

cuts. With an average household size of three for
AFDC households, translates to 90,000 persons
losing all income. In addition, many others who
were not vendoring, did not receive enough to pay
for shelter after cuts, they too would lose housing.
Locating replacement housing would be very
difficult since most landlords who rent to low
income families were already charging the
maximum that DSS would pay.

• In addition to shelter vendor terminations, 6000 utility vendor
termsinations. Utility vendoring gives shut-off protection. So
6,000 were losing shut-off protection.

• Loss of discretionary income - no money to pay for doctor
travel, etc.

• For every ten dollar ($10) increase in cash benefits, there is a
$3 increase in FS benefits. Thus a reduction in ability to purchase
food.

• Psychological harm to thousands who would be living in fear
of becoming homeless and destitute.

During the preliminary injunction hearing in the Wayne County Circuit Court, plaintiffs
presented enormously detailed in-court testimony, affidavits, and documents from clients,
emergency providers and experts demonstrating the probable consequences of the cuts as listed
above.

The Wayne Circuit Court Judge issued a decision denying Plaintiffs Motion for

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Preliminary Injunction on March 28, 1991 ~ some of those claims are on appeal, however,
many of the Separation of Powers claims were resolved favorably in later litigation between the
Speaker of the House and Governor Engler. See infra. ^

RARPnT/rAMPffFJJ. LITIGATION

In late April of 1991, a lawsuit was filed on behalf of a class of AFDC recipients and
OBRA/Qualified Medicare Beneficiaries (QMB) recipients in the United States District Court
for the Western District of Michigan challenging the State of Michigan's failure to pay AFDC
benefits at the levels in effect in May of 1988 as a violation of the Medicare Catasti-ophic Act,
42 use §1396a(e) (MCCA). Plaintiffs challenged also the elimination of Medicaid coverage
for OBRA/QMB beneficiaries. ^

The District Court entered a temporary restraining order enjoining the State from
reducing its AFDC benefit levels below those in effect in May of 1988.' However, the Court
denied Plaintiffs-class' request for preliminary injunction and held that the MCCA prohibited
only those reductions in AFDC levels made for the explicit purpose of paying for increased
Medicaid costs. The decision is on appeal.

Meanwhile, MLS filed a lawsuit on behalf of plaintiff class of AFDC recipients and
former recipients of OBRA/QMB as a related case to Babbitt in which plaintiffs are challenging

' The cuts were implemented in March, 1991 and Plaintiffs'
fears were realized as the number of evictions soared, etc.

^ Babbitt V Michigan, No. 4:91-CV-56 (W.D.Mich.) final decisions from
District Court October 29, 1991. On appeal to the Sixth Circuit Court of
Appeals.

' In May, 1991, Michigan was paying AFDC benefits approximately 15% below
the levels in effect in May, 1988.

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HHS' authority to approve of Michigan's Medicaid plan amendments when the State is paying
AFDC benefits at a level below those in effect in May, 1988. That case is pending/

The State of Michigan continues to pay AFDC benefits at a substantially reduced rate,
and despite two recent adjustments, AFDC benefit levels in January, 1992 were 13% lower than
the benefits paid to recipients in January, 1991 . (See (Generally, Center on Budget and Policy
Priorities, The States and the Poor, How Budget Decisions in 1991 Affected Low Income
People). There are approximately 650,000 AFDC recipients in Michigan ~ the reductions in
grant amounts means that those families are living at approximately 56% of the poverty level,

SAXON V MILLER
In April, 1991, DSS announced that it would no longer pay delinquent water and
sewerage bills under its Emergency Needs Program for renters and homeowners. Under long-
time policy and detailed rules defining the ENP program, DSS paid for all utilities, including
water if the claimants met the eligibility criteria and were facing an emergency as defined in
statute and rules.

In May, 1991, MLS filed suit on behalf of a class of plaintiffs eligible for ENP services
for delinquent water bills, but for the policy change; and was claimed that the policy change
which was adopted by administrative fiat violated the Michigan Administrative Procedures Act.*
A temporary restraining order was entered was entered on May 17, 1991 and plaintiffs presented

* In a similar lawsuit, the U.S. District Court in Massachusetts issued
an opinion declaring that the State's reduction of AFDC benefits levels below
those in effect in May, 1988, violates MCCA. Avanzato v HHS. et al. .

No. 91-30205-F.

* Saxon, et al. v Miller, et al. No. 91-69009-AZ, Ingham Circuit Court.

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proofs at an evidentiary hearing for preliminary injunction in June. The proofs demonstrated
that irreparable harm was occurring to plaintiffs living without water or facing interruption of
services. At that time, thousands of Michigan residents were facing termination of water
service. Several named plaintiffs had survived without water services for up to several weeks,
relying on neighbors or the local fire department to fill up pop bottles for them in an attempt to
meet their sanitation and hygiene needs. The affidavit of Jane Doe included in the attachments
demonstrates graphically the harm incurred by plaintiffs. (Attached "A"). - —

Testimony from experts, including Dr. Myron Wegman, M.D., substantiated plaintiffs'
claims that lack of adequate water supply posed a threat to the health of the individuals directly
affected and potentially the general public.

The court continued the TRO in effect pending a ruling on Plaintiffs' Motion for
Preliminary Injunction. DSS rescinded its policy for non-payment of water bills in July, 1991.

STATE ADMINISTRATIVE BOARD TRANSFERS
In May, 1991, Governor Engler convened a meeting of the State Administrative Board
to approve resolutions for transfer of appropriations between line items, including a resolution
to move funds out of the line item for General Assistance benefits and into account for SSI
supplements. Medicaid, etc. DSS immediately began implementing plans for termination of the
GA program and sent notices to clients at the end of May that all GA benefits were ending
effective June 1, 1991.

Several members of the Legislature filed suit against the Governor and the State
Administrative Board challenging the proposed transfers as unconstitutional and in violation of

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the Separations of Powers clause of the Michigan Constitution.* Although the lower court
denied the plaintiffs' request for relief the Court of Appeals issued a preliminary injunction
enjoining the transfers.

Meanwhile, plaintiffs in Saxon filed an amended complaint on behalf of GA recipients
threatened with termination of all cash assistance on June 1st. Because of the injunction in
Dodak. plaintiffs did not have to pursue their claims concerning termination of the GA program.

1990 PA 68 SUPPLEMENTAL APPROPRIATIONS

The Legislature and Governor reached an agreement on June 16th providing supplemental
appropriations for the AFDC program, families receiving GA and various other line items,
including Medicaid and foster care. Benefit levels for AFDC and family GA were increased by
8.50%, resulting in a ratable reduction of 8.5%. However, GA payments for single GA
recipients were reduced an additional 12%, for a total reduction of 29%, resulting in benefit
levels of approximately $170.00 per month to GA recipients. Recipients of GA who could prove
they were disabled would be spared the additional 12% reduction. Since no determination of
disability had been made for any GA recipient, disabled recipients who eventually proved their
disability would have to wait to receive supplement some time in the future.

The GA program, the implementation of the disabilit>' supplement, and the Executive's
proposal for further reductions in the Medicaid program, the Emergency Assistance program and
the state funded indigent medical care become the centerpiece of discussions for the 1992

Dodak, et al. Engler, et al. , Ingham County Circuit Court, No. 91-68942-
CZ; Court of Appeals decision, reporter 190 MA 260 (1991),

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budget.

The huge reduction in the amount of GA grants had already proved devastating for GA
recipients, especially disabled and older recipients who could not even pay their rental obligation
out of the monthly benefits. Data from emergency providers including temporary shelters and
soup kitchens continued to show that thos agencies could not meet the increasing need of
Michigan's poor. (See generally, More Water in the Soup. Michigan League for Human
Services, Attached B).

1991 PA 111; AND SAXON V MILLER CHALLENGING FAILURE TO PAY
BENEFITS TO DISABLED GA RECIPIENTS AND ELIMINATION OF
EMERGENCY NEEDS BENEFITS AND INDIGENT MEDICAL CARE

The Legislature enacted the appropriation for DSS for fiscal year 1992 on September 28,

1991. The budget which was passed consisted essentially of the Governor's proposals for DSS.

The main provisions of PA 1 1 1 are as follows:

• Elimination of all funding for GA for single adults and married
adults without children.

• Creation of a State Disability Assistance Program for several
categories of disabled persons, the most significant of which, "is
a person who is medically diagnosed as incapacitated and
unavailable for work for at least 90 days".

• Elimination of the Emergency Needs Program and distribution
of limited funds to the counties in the form of block grants to use
for emergencies with no guidance from the State.

• Elimination of the Indigent Medical Care Program and
distribution of limited fiinds to the counties in the form of block
grants to use for indigent medical care with no guidance from the
state.

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On October 2, 1991 , MLS filed a Supplemental Complaint on behalf of a class of former
GA recipients who were entitled to receive continued assistance because they are disabled.
Plaintiffs alleged that DSS violated their right to constitutional due process in that they were not
given adequate notice of the termination of GA benefits, the criteria for the disability assistance
program, and were deprived of aid pending evaluation of their eligibility for SDA.

During the preliminary injunction hearing plaintiffs produced incredible proofs of the
harm occurring to class members who although severely disabled were without any source of
income. Some of the declarations admitted into evidence are included in the attachments. The
declarations provide graphic illustration of the deficiencies in the program, which deprives aid
to people in such obvious need.

Here are some examples from October, 1991 when the cuts had just occurred:

o person seriously injured in a car accident, living without gas and
under notice of eviction,

• person suffering from polio, asthma,and diabetes, living in an
apartment with no heat, water, or electricity, and unable to pay for
medication,

• sixty-year old person living in a shelter following hospital
release for emphysema, and hypertension,

• 56 year old resident of adult foster care home recuperating
from heart surgery, suffering from severe emphysema, unable to
pay for himself, and out of medications.

The trial court in a lengthy opinion granting preliminary injunction, to plaintiffs described

the enormous harm to plaintiffs unfolding within the 2 weeks following termination of benefits:

The fact that the foregoing people are not qualified for benefits is
only part of the story. The "rest of the story" is filled with
chapters about people who may lose their homes, people forced

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from their apartments, who cannot pay utilities or purchase
medicine. This story is also about people whose families have
been ruptured, whose privacy has been taken away, people who
must sleep on the linoleum floors of noisy and overcrowded
shelters, and who have been subjected to a host of other
indignities. The assertions of immediate and irreparable harm are
established beyond question.

Of the cases considered by this court, it is difficult to think of an
instance in which granting the requested injunctive relief is more
clearly in the public interest. Granting this relief would
ameliorate, at least in part, some of the unjustified suffering
brought about through the unlawful termination of those benefits
by the Department. It would permit some of these people to
remain in their homes, remain with their families, pay their
utilities and reestablish at least a semblance of normality in their
lives.

In addition, granting injunctive relief here will permit the DSS to
put into place a mechanism for identifying those persons who do
qualify for disability payments. It will to some extent help restore
confidence in the ability of the DSS and ultimately the State of
Michigan to address the important social problems which now
confront the people of this State. Slip Op. Saxon v Miller. Id.

Although, the trial court ordered DSS to establish a plan for identifying disabled people
and to pay benefits pending evaluations of eligibility, DSS filed an emergency appeal and the
Court of Appeals issued a stay of the preliminary injunction. The preliminary injunction was
reversed by the Court of Appeals on November 11, 1991 and leave to appeal to the Michigan
Supreme Court was denied.

Despite enormous public outcry and hearings in the Legislature inquiring into the
practices in the SDA program, DSS' lawless practices which deprive thousands of eligible
former recipients of desperately needed assistance continue. In fact, only approximately 3,000

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additional persons have been determined eligible for SDA since its inception October 1st J

The principal reasons for the shockingly low number of SDA recipients are found in the

practices employed by DSS and the rigid and narrow definition of disability being employed by

DSS despite the broadly written statutory definition of disability.

Studies of the GA population undertaken prior to the cessation of the program show that

as many as 40,000-50,000 former recipients suffer from disabilities or other impairments which

may qualify them for SDA; (studies attached "E"), yet only 7,500 individuals are receiving SDA

benefits.

STATUS OF RESTRICTIONS AND REDUCTIONS
IN ASSISTANCE PROGRAMS

The restrictions on access to assistance programs and drastic reductions in scope of

services and amount of benefits for poor persons, have as a result of recent actions taken by DSS

become more severe. What follows is a discussion of the current reductions in assistance

programs in Michigan, and consequences of those cutbacks for the poor in Michigan.

SDA Program

The problems with misclassification of disabled people not only arose in the transitional
period but obviously continue.

The Detroit Free Press reported on February 7, 1992 " the plight of a 58 year old
Oakland County woman' who had a stroke January 25, 1992. The divorced woman had once

^ Forty-five hundred (4500) Medicaid eligible recipients were

automatically transferred to the SDA program in October, 1991 - thus only 3,000
additional disabled individuals have been identified by DSS in five months.

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been a nursing assistant, but because of a strained back, high blood pressure, and arthritis, was
supported by General Assistance benefits until the program was narrowed to eliminate the
nondisabled October 1st. Her doctor filled out a form for the new Disability Assistance
program. The newspaper continued, "But without laying eyes on her, the bureaucracy turned her
down at the end of November. At a review two weeks later, a medical social worker said her
blood pressure wasn't that high." This woman is now out of the hospital, but in need of
physical therapy. She only after very recently after being named as a plaintiff in a proposed
lawsuit was determined eligible for SDA benefits. (Editorial attached). Another 61 year old
woman suffering from angina pectoris, arthereosclerotisic, heart disease, duodenal ulcer,
esophagitis, diabetes, and uterine tumors, waited five months to be determined eligible despite
her doctor's letter to DSS in October stating that she is disabled.

A 49 year old woman suffering from bipolar disorder, severe osteoarthritis, and ruptured
disc, applied for benefits in September 1991 and still has not received a decision in her case.
Her doctors submitted the requested forms stating she is unemployable several months ago.

Some of the most extraordinary evidence came from private attoreys hired by hospitals
to secure Medicaid coverage for patients. These attorneys reported to the Michigan Legislature
in October, 1991 that many seriously ill clients of theirs had been terminted from General
Assistance on the grounds that they were "able bodied", including a 56 year old resident of an
adult foster care home recuperating from heart surgery, suffering from severe emphysema,
unable to care for himself, and out of medications. A copy of that letter is attached (Med Law
Associates Letter to Rep. David HoUister "C").

We continue to observe that many persone who are in fact severly disabled do not receive

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benefits because of administrative barriers which include:

• As staff is reduced, and existing staff overwhelmed by crises
generated by benefit cutoffs, many people seeking help will simply
not be seen.

• Medical evidence is hard to obtain, especially when tiie same
will not provide for medical care for General Assistance recipients.

• The experience in Michigan at this point is that doctors who do
complete forms frequentiy fill them out inadequately, and agency
workers, who are under an obligation to assist in gathering medical
evidence, do not in fact provide assistance.

Testimony and discovery in litigation has established that standards by decision makers

vary enormously, and that persons are found not disabled even if there is no possible available

job that they could fill. According to policy, agency workers do not take into consideration age,

training, or experience. The statewide disallowance rate for SDA continues to be a shockingly

high rate of 75%.

THE EMERGENCY NEEDS PROGRAM

The Emergency Need Program is a joint federal-state program providing benefits to
eligible applicants facing an emergency as defined in rules and who need one or more of a wide
range of services, including utilities, shelter, property taxes and various other essential services.

The Legislature enacted a supplemental appropriation for the Emergency needs Program
and Indigent Medical Care Program (SMP) on November 21, 1991 which provided funds for
those porgrams and reconstituted ENP and SMP as single-state agency programs. 1991 PA 139.

Despite the supplemental funds, DSS issued emergency rules redefinng the ENP program
and renaming it the State Emergency Relief Program. The so-called new program consists of

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dramatic revisions in eligibility requirements for emergency assistance, so drastic as to preclude
virtually all applicants from receiving emergency benefits.

In addition, the scope and amount of services are so restricted that issuance of emergency
assistance is unlikely to ameliorate important emergencies. A few exampless of the drastic
reductions follow:

• excluding services,

• limiting grants of service,

• imposing ceilings on the dollar amount of services that may be
provided within a single fiscal year, ten year period, and a
lifetime,

• creating client contribution amounts which exceed the amount
in the client's grant for the service,

• assuming contributions from persons who have no income,

• arbitrarily excluding from relocation assistance, certain
homeless persons,

• eliminating secirity deposit payments,

• imposing requirements on eligibility for assistance, including
the affordable housing rule, which preculded assistance for
applicants whose housing costs exceed teh lower of $160 for single
persons or 70% of their monthly income,

• requiring all applicants to demonstrate that they have a montly
income of at least $165.00.

The restrictions on eligibility and amount of benefits are resulting in enormous hardship
to the poor in Michigan, who are no longer receiving assistance with shelter or utilities. One
example of a 35 year old SSI recipient illustrates dramatically the impact of the reductions in
ENP on the poor and persons with disabilities. (Attached Declaration A). Ms."S" suffers from

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insulin dependent diabetes, ketoacidosis diabetes, and chronic depression so severe she has been
hospitalized numerous times following suicide attempts. Her diabetic condition is life-
threatening and requires hospitalization and constant monitoring. Despite her relatively low
monthly rent of $200.00, she cannot obtain emergency assistance to help pay her deliquent water
bill because of the housing affordability policy which precludes eligibility for individuals whose
rent exceeds $160.00.

We are aware of hundreds of persons in desperate need of emergency assismce for rent
and utilities who are daily being turned away from DSS offices. The most outrageous expamples
include homeless, indigent persons who cannnot get assistance to pay any rent or shleter costs.

The patent absurdity of the emergency assistance rules is reminescent of the law review
article discussing the maze of bureaucracy in the New York City Welfare Department. The
article is titled, Charles Dickens Meets Franz Kafka: sadly it is an apt analogy to the present
structure of emergency programs in Michigan. Anna Lou Dehovenon, 17 New York
University. Rev. of Law and Social Change 231.

MEDICAID AND INDIGENT MEDICAL CARE

Direct health care programs have not fared any better than cash assistance and emergency
needs programs in Michigan. In fact, during October and November, 1991, there was no
indigent medical care, with the limited exception of payment for life-sustaining prescriptions.

The case of Eva Fredericks, the Copemish resident, who stretched her heart medications
resulting in a stroke and later her death is widely known. There are thousands of cases where
persons in need of medical care are deprived of that care. (See attached affidavits of Vernon

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and Mary Faircloth, A).

The state is operating a two-tier medical program , at present, which provides very
limited health to poor persons who are not receiving SDA or family assistance. The attached
chart distributed by Gerald Miller at a February 6, 1992 hearing shows the disparities in indigent
health care. (Attachment D).

Following are responses to the Committee's specific questions regarding Michigan's
health coverage and Medicaid State Plan:

1. Which of the many Congressionally-mandated expansions to the Medicaid
program has Michigan implemented?

Michigan has expanded pregnancy benefits and children's benefits to federal
maximums. Michigan has implemented benefits to Qualified Medicare Beneficiaries.
Michigan has expanded benefits to community spouses of nursing home residents, at
federal minimum for income and assets.

2. What have been the increases in the numbers of those receiving each type of
Medicaid benefit and those receiving more benefits, by type?

3. To what extent have those expansions contributed to the burgeoning costs of
the program, broken down by the cost of each expansion?

See national data in GAO report, attached. (Attachment "E").

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4. What other factors are fueling health care cost inflation and increasing
demands on the state's Medicaid program and what have been their impacts on access to
care and the quality of care?

Increasing hospital and nursing home rates, and probably pharmacy and diagnostic
items appear to have the biggest impact on health care cost inflation.

5. What initiatives have been undertaken by state and local officials to continue
to offer health care services with dwindling federal and state dollars?

Wayne County has incurred costs of $4 million/month since October 1 when state
stopped making payments of County Care dollars.

6. What alternatives exist to provide health care services and other services with
public health ramifications, i.e.efforts to provide food, drug abuse education, and
counseling?

Port Huron-free "People's Clinic"
Lansing ~ free "Friendship Clinic"
Detroit ~ free Holy Trinity Clinic

Providers at these clinics seek specialty care from area hospitals, universities,
apparently with success. Attendance at these clinics limited by geography and limited
hours.

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7. How much have Medicaid funding levels been reduced as a result of the
state's budget deficit?

a. $11 million pulled out of Medicaid which paid for Medicaid benefits for
seniors/disabled with incomes within 90% poverty level.

b. See Exhibit "B" for the exact amount of Medicaid reductions from FY 90-
91 to FY 91-92. Overall-$253 million in savings created. But some of the larger savings
items are things which Engler is doing little or nothing to foster—eg $46 million by
developing a nursing home estate recovery program and making adult children
responsible for their parents. Also, $48.5 million savings was expected from reducing
rates of County Medical Facilities, but they haven't been reduced.

c. Actual "cuts":

1991 - OBRA $11 million

Chiropractic Services
Some physical therapy

Virtually all residential treatment for substance abuse

1992 - AU of '91 cuts plus:

Podiatry ($1.8 million)
Dental ($18 million)

Medical transportation-limited to $.21 /mile or $3 for a round trip
(whichever is greater), which client can only get by applying for
reimbursement. This virtually eliminates cabs. Vans for persons with
special needs cut to $21/trip.

Because DSS has not reduced all of the items listed in the budget, there probably will be

a deficit in the Medicaid account.

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8. How many people (1) no longer receive Medicaid benefits? (2) receive fewer
benefits?

Persons cuts off AFDC as a result of ratable reduction lost Medicaid
figures cannot be determined. However, of interest, medically needy families (spend-
down families) increased from 18,000 in January 1991 to 24,000 in September, 1991.
This could represent a shift from AFDC to the medically needy program, or it could
simply mean that more families had incomes low enough to qualify for medicaid between
January and September. Also, of interest, in January 1991 there were 17,470 cases open
for pregnant women, and in September, 1991 the number had risen to 27,509. This may
suggest a number of people losing AFDC due to the cuts, and those who were pregnant
would then be transferred to the Mich-Care (Pregnant women) category.

Elderly and disabled persons with incomes between $360 and 485 (approximate,
depending on county of residence) lost Medicaid.

Persons who lost Medicaid due to OBRA cuts--about 16-17,0(X).

(2) Receive fewer benefits?

All adults have lost dental, chiropractic, podiatry,and transportation. For the most part,
children's benefits have remained intact, except that DSS has cancelled its outreach contracts in
EPSDT, which may well mean that children are utilizing services at a lower rate.

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We would be remiss to overlook the closure of state mental health facilities already
underway . The dumping of individuals suffering from serious mental illnesses into the streets
to fend for themselves is among the most cynical and harmful policies being carried out in this
State.

WHAT ABOUT THE SO-CALLED EMPLOYABLE?
The experience of the former General Assistance recipients in the State of Pennsylvania
in their attempt to find employment provides some clue as to the current situation and likely
developments in Michigan for the so-called "employables" who are no longer receiving any state
assistance.

In Pennsylvania, where the reductions were not as drastic as in Michigan, the data

showed that very few former recipients found employment in the year following the cuts:

In the year after aid terminated 63.5% of the "employables" were
not able to obtain any employment! Since 23.9% had been
employed while they were receiving General Assistance, it appears
that only about 12.6% of the caseload that had not been employed
while receiving General Assistance worked at some time in the
year following termination of General Assistance. Moreover, by
looking at information in state employment records, the agency
reports, much later in its report, that 64% of those terminated as
"employable" were not able to obtain any "covered employment"
(i.e., covered by Unemployment Compensation and therefore a
matter of record with the State) in five quarters following
termination. Only 2.7% obtained a job that lasted more than a
year, and another 3.9% obtained a job that lasted more than 9
months.

Thus, the increase in any employment, and particularly the
increase in employment of any duration, was slight. Nonetheless,
as the State notes, there was a significant increase in the number

-22-

162

of employers contacted by former General Assistance recipients
seeking employment increased from 4.5% while the recipients
were still receiving benefits to 5.1% after termination. As one
advocacy organization notes, this increase in .6% contacts per
person per week, if multiplied by the 68,000 persons the State
considered transitionally needy by the 26 weeks in the survey
period, there would have been one million additional contact made
during this period ~ an astonishing number when compared to the
very few jobs obtained.

Impact of Termination of Benefits for "Employables" in Michigan. Massachusetts, and
Pennsylvania, Center on Social Welfare Policy and Law, 1992.

The situation in Michigan can only be worse than that of Pennsylvania, with double digit
unemployment confounding the prospects of employment for thousands. The choice made by
Michigan to drastically reduce human services in a recessionary economy is unwise and
unsupportable.

SOLUTIONS AND RECOMMENDATIONS

On February 27, 1992, Michigan Legal Services filed suit on behalf of several plaintiff
classes, including plaintiffs representing SDA, ENP, and Indigent Medical Care classes.

Plaintiffs are challenging the unlawful policies and practices in these programs, which
are discussed above in some detail. Faircloth. et al. v Miller, et al. . Ingham County Circuit
Court, Case No. .

It is apparent from our experience that litigation and advocacy do not begin to address
the enormous misery and crises heaped upon Michigan's poor, ill, elderly and young.
Moreover, private agencies and charities cannot possibly fill the gap left by the cuts.

Soup kitchens report that they are serving more meals, and serving them earlier in the

-23-

163

month. Operators believe it likely that clients need more food aid because they have had to sell
food stamps to pay rent, have had to move from housing with cooking facilities to housing
without cooking facilities, or become homeless.

The Department paid rent directly for GA recipients. When landlords received notice
from DSS that no further rent payments would be made, massive eviction ensued, social
welfare organizations report there has been a dramatic increase in illegal evictions. These
organizations cannot provide assistance, however, because they are already overwhelmed by
crises and cannot handle more persons, particularly when their own public and private funding
have declined.

The attached pages from a lengthy study of emergency providers conducted before the
most drastic reductions reveal that the emergency in Michigan is not and cannot be met by
private agencies. More Water In The Soup, supra.

The federal government must take a look at possible measures to provide short-term
emergency relief to this State and long-term solutions must be found which include assistance
programs which provide benefits to the elderly and disabled not eligible for traditional federal
programs and for single adults in transition, especially in times of high unemployment.

Further, the federal government can and should require states which like Michigan,

receive huge amounts of federal match funds for the Medicaid program, to provide other

assistance and emergency benefits to the poor. The crisis in Michigan exemplifies the absurdity

of a large medicaid program which cannot meet the needs of the poor, due to deprivation of

other essential services.

Strict enforcement of the MCCA would go a long distance in resolving the dilemma.
We appreciate the opportunity to submit this written statement and to testify before the

Sub-committee on issues of enormous importance to the most disadvantaged citizens in

Michigan.

164

-9A-DETR0IT FREE PRESS-FRIDAY. FEBRUARY 7

SAFETY NET

Gaping holes remain despite Engkrs claims

he plight of a 58-year-old Oak-
land County woman who was
rejected for Michigan's new dis-
ability assistance diows that de-

- serving people are plunging through the
: safety net Gov. John Engler Wednesday
; called one of the nation's strongest

'. The divorced onetime nursing assistant,
; who has a strained back, high blood pres-

sure and arthritis, got general assistance
: (GA) until that was abolished Oct. 1. Soon
: ifter, she got her doctor to fill out a form for
: the new disability assistance. But without

l^ing eyes on her, the bureaucracy turned

• her down at the end of November. At a
review two weeks later, a medical social
worker said her blood pressure wasn't that

• high. She had a stroke Jan. 25.

Now out of the hospital, she needs

- physical therapy but has neither insurance
^ nor income. The state still hasn't classified
^ her as disabled.

Making due provision for how state

- policies work in the world is a key challenge
for Gov. Engler and the Legislature as they
work out a budget for the Oct. 1 fiscaT;
year.

Wednesday night, Gov. Engler outlined
^ his $21 billion-plus proposal in terms too
^ broad to see what it really means that he

■ wants to hold the line on taxes, maintain his

■ commitment to education funding, and as-
■sure current levels of social service pay-
'ments to families, children, the aged and

the disabled. Details of the budget proposal

were expected today.

Mr. Engler advanced good ideas on
extended day kindergarten for at-risk chil-
•dren and tutoring "our youngest students"
iin basic skills, for example, but did not say
3iow much of the need will be met. Nor did
Tie evince the level of commitment to school
^finance equity vital to the outcome.
' As for his "safety net," the state still has
not even notified people who used to get GA
that the new disability program exists. As a
'result, few of the increased number of
beggars in wheelchairs or on crutches in
downtown Detroit seem to have heard of it.
And the case of the Oakland woman shows
how a decision on who gets the new state
disability assistance, about $244 a month in
metro Detroit, may disregard who ran
really ^;et ;i lob or even work.

DSS DIrct tDr Gerald Miller ^ays that

the definition of disability is under review
and may be adjusted. The problems, he
says, are essentially startup ones. The
assignment of only 12 medical social work-
ers across the state to deciding the 18,000
to 20,000 pending applications for SDA
suggests those "startup" problems may not
get worked out soon.

By contrast, Kathleen Gmeiner, an at-
torney for Michigan Legal Services here,
notes that the Social S^urity Administra-,
tion processes disability applications by
assigning values to a person's age, woiici
experience, training and education, as well
as to the medical or psychiatric view of the
work the person can do. She argues Michi-
gan ought to use more generous standards
because people like the Oakland woman
have almost nowhere else to turn.

The governor's promised compassion
doesn't mean anything without effective
policies. So far, the "safety net" seems
designed to save him and his social pro-
grams from the reputation of heartlessness,
but their pulse seems mighty low.

166

MORE WATER IN THE SOUP

A Status Report of Private Emergency Services Providers

Michigan

June 1991

Michigan League for Human Services
300 North Washlngcon Square • Sxiita 401. Lansing Michigan 48933 • (S17) 487-5436

166

MORE WATER IN THE SOUP

A Status Report of Private Emergency Services Providers
in Michigan

Table of Contents

Preface H

Summary of Rndings 1

Background .* 3

Profile of Agencies 4

Profile of Client Population 9

Local View of Trends and Future Capacity • 11

Conclusion 13

Recommendations 16

Appendices:

A - Urban/Rural Differences 17

B - List of Surveyed Counties : 19

ADVISORY COMMITTEE

Major Geoffrey Allan (Board of Directors) Executive Director, The Salvation Army. Hartxir Light. Detroit

Sister Mary Janice Belen, aS.M. (Advisory Coundi). Lansing

Gloria Hajduk-Emmons (Advisory Coundi) Disability Examiner. Michigan Department of Education, Kalamazoo

Pam Fulton (Public Affairs Committee) Executive Director. Advent House Ministries, Lansing

Manuel F. Gonzalez (Board of Directors) Director. Offk» of Migrant Sennces. Michigan Department of Sodal

Services. Lansing

Noreen Keating (Public Affairs Committee) Executive Director, Lighthouse, Pontiac
Wendy Lewis (Public Affairs Committee) Senior Associate. United Way of Kent County. Grand Rapids
Robert Smith (Board of Diredors) Executive Director. Northwest Mfchigan Human Senrices Agency, Traverse City

About ttte Michigan League for Human Services

The League, organized in 1912. is a statewide organization working to improve human
services in Michigan and to enhance the functioning of the state's nonprofit ctiaritable
organizations. It is supported by local United Ways through the United Way of Michigan,
membership dues, grants and contributions.

167

MORE WATER IN THE SOUP

A Status Report of Private Emergency Services Providers
in Michigan

A phenomenon probably not experienced in Michigan in the last fifty years is
gripping the state's cities, towns and countryside. Breadlines are everywhere.
Tens of thousands of people-invisible to all. but those filling the soup bowl or
handing out the used top coat-are GnedT up each week at church doors,
community centers, and shelters to get their most basic of needs tnet The
following findings attempt to quantify and. to describe wtiat is happening: no
attempt is made here to capture the human suffering and humiliation felt by
the people in those lines-the parent who cannot meet the needs of a child,
the worker who cannot find a job, the family evicted because the rent money
was used to fix an old car, the wage earner's only transportation to an
essential, if meager, paycheck. Human tragedies such as these do not
appear in statistical analyses-ffiey are, nonetheless, the heart of the matter.

SUMMARY OF FINDINGS

The Respondent Providers

Experienced in service provision, over half of the providers have been around for more
than fifteen years and provide multiple services, having grown with the expanding needs
of their communities. In the respondent group, there is a large dependence on private
funding sources, particularly for the one-third of the providers who are directly affiliated
with a local congregation or a larger religious organization. Tne majority also depend on
the federal government for a portion of their funding, with providers of emergency shelter
particulariy dependent on this source. The Red Cross has apparently evolved into more
than a provider of traditional disaster relief; chapters have become ongoing providers of
routine emergency services as well. For large numbers of other respondents, including
the Salvation Army, emergency service provision has also evolved into ongoing basic
need supplementation for their clients rather than periodic assistance to help handle a
nonrecurring emergency need. Over half of the respondents reported having no larger
affiliation, suggesting a truly private provision of services.

The Service Population

Clients of the respondent providers are diverse in age. with neariy a quarter under the
age of twenty. They also appear to be in compromised health: only a third are
distinguished by providers to be in good health, with a sixth reported as having a
disability. Almost 30 percent are employed and an estimated majority receive some type
of help from government-sponsored assistance programs, suggesting serious problems in
the adequacy of the clients' income, whether drawn from the labor force or the public
assistance system.

The Scope of the Need

Over 97,600 people, including 22.500 persons under 20 years old. are served in an
average week by the survey respondents, who represent an estimated 18 percent of all
private emergency service providers in Michigan. (See endnote for methodology.) Using
this premise, it is entirely possible that 542.000 people request some type of assistance
from private emergency service providers in Michigan each week, induding neariy
125.000 children. Even assuming a degree of duplication-that some individuals or
families may receive several services in a single week, and the caseloads reported by the

MLHS-1

168

BACKGROUND

Involvement by the private sector in meeting emergency needs reflects a long-standing
tradition in the United States. Prior to the 'Great Depression' of the 1930s and the
passage of the Social Security Act~a measure that addressed unemployment compensation,
old age assistance, aid to dependent children, maternal and child health, child welfare
services, crippled childrens services, and federaf appropriations for public healtti-private
service providers were the major source of assistance for those whose basic human needs
were not met through their labor or family arrangements.

Religious organizations played a major role~as they do today~in the private response to
human need. Nonprofit social sen/ice agencies as well have played a historic role in
responding to basic needs, causing Michael O'Neill to observe in The Third America that "If
opera companies and Ivy League universities represent the establishment side of the
nonprofit sector, social agencies represent its. . . sometimes heroic, often heartrending
side."

But it wasn't until the eariy 1980s, when the nation was buffeted by a major economic
recession and the private sector was being asked by the federal administration to take up
the slack caused by a 25 percent reduction in key health and social welfare programs, that
researchers took a serious look at private nonprofit assistance programs. They discovered
that religious congregations remained a vital force in the provision of human services,
through both their direct service provision and their socializing of individuals to the
importance of charitable giving and voluntarism. In the eariy to mid-eighties, an Urban
Institute study confirmed that almost half of religious congregations nationwide were
providing emergency food, and one in three was- providing cash assistance. Seventy
percent had increased their subsistence programs in response to increased demand.

In some ways hampering the congregations' ability to broadly Impact on the problems,
researchers discovered that expenditures on subsistence service activities delivered locally
are more substantial among wealthier congregations than poor ones, where the need is
greatest It was discovered that black churches, which serve constituencies that often
contain disproportionately large numbers of poor people, tend to respond more readily to
appeals to help individuals in immediate need than to other good causes; in response to the
climate of the eariy eighties, many of them instituted broadened social services programs
which remain today.

Michigan-specific data on private social service delivery is woefully lacking, although the
League did undertake a study in the eariy 1980s which shed some light on the status and
services of the state's voluntary service sector. A significant share of agencies-one in four-
-were providing emergency services in the areas of food, shelter and utilities. However, an
assessment of the scope of emergency services provision was not a specific objective of
the study. Religious congregations were not included among the surveyed service
providers, limiting tiie usefulness of the study in measuring the scope or focus of
emergency services being provided in Michigan during that period.

Between 1989 and 1991. local hearings on emerging needs were held quarterly by the
League's Public Affairs Committee in various geographic areas in Michigan, creating the
only window available on the activities of private service providers prior to the study. To
the degree that this local testimony validates or conhadicts the study's findings, it is
incorporated in the following narrative.

MLHS-3

169

240. people each weeie forty-three percent served over 100. and about 17
percent served over 500. (See Figure 1.) In the aggregate, the respondent
providers-which represent .an est^nated 18 percent of ail providers in the
state-assisted 97.600 persons in an average week. It should be noted that
the count of people is not necessarily undupltcated-the same individual may
have received several services from an agency during a single week. The
totals may more accurately reflect the numtjer of requests for assistance to
which an agency responded in an average week.

Most providers (over 75%) do not Cmit their services on the basts of gender,
age. or family structure-they attempt to serve any persons needing
assistance. The remainder provkie services to special, categorical
populations such as abused women and/or children.

Types of Services Provided

The providers offer a broad range of sennces, emergency and othenwise:
roughly 70 percent of the respondents reported providing at least four
different types of services. Food boxes and clothing are the most commonly
offered service, followed by transportation assistance. (See Table 1.) In rural
counties, providers are most likely to provkJe heating or other utility
assistance due in part to different billing and use patterns in those areas.

Table 1

Type of Service

% of Respondents
Providing the Service

Food Boxes
Clothing

Transportation Assistance
Shelter

HeatingAJtility Assistance
Prepared Meals
Education/Job Training
Medical Care
Cash Assistance
Mental Healtii Services
Dental Care
Other

58.6
58.6
45.4
43.6
38.3
34.4
23.3
23.3
20.7
11.0
7.9
23.8

A large number-three in four of the respondents-also report that they provide
information and refenal services. Some other less common services include:
the provision of furniture, housing assistance, services for senior citizens,
children's services, counseling, advocacy, personal need items (e.g.. toile-
tries), and legal assistance. Providers appear to be trying to tailor their
services to meet the changing needs of their clients. For example, as pro-
viders are becoming more aware of the growing problem of homelessness.
some are initiating plans to move toward offering more prepared meals and
fewer food boxes. Others are experimenting with the provision of two types
of food boxes: one to serve homeless clients and another for those with
access to utensils for food preparation. The boxes for the homeless are
generally more expensive to prepare as they must include things like paper
products and can openers. Personal mobility is also t)eing addressed as an

"Our program of
occasional help In
the neighborhoods
has long since
expanded."

Macomb County

"We are consider-
ing shifting to two
kinds of food
boxes—one for
persons who can
store and prepare
food, and one for
the homeless. . .
canned goods are
too heavy for
people who carry
around everthing
they own all day."

Ingham County

MLHS-5

170

Seven in ten respondents were forced at some point to turn people away.
Those reporting that they are unable to serve aO those in need mdacsSB that
they turn away between 1 and 500 per month, dependent upon the size of
the agency and the scope of its services. Not aO denials are due to depleted
resources-some of the persons turned away dont meet efigbiity require-
ments set by the agency, either because they don1 belong to the spedaiHTRd
population served by the agency, or don't live in the geographic area served.
Others have no forni of identification, or can't meet the low-income guidelines
set by the respondent A certain portion are turned away because they
request a service that is not avaSabie. One In three have-* previously received
assistance within an agency's allowable time frame. Rnaliy, over 40 percent
are turned away because the agency or organization has reached its capacity
and can offer no more services, .tt should be noted that many agencies with
current income-related ettgSaility guidelines are lessening restrictions as it gets
more and more dfficult to pirovide for an individual or family at or near the
designated poverty leveL

Waiting Lists

A quarter of the respondent providers cunently have waiting lists in place.
An average of thirty persons are on a single agency waitirig list at any point
in time, and the average wait is roughly seven weete. Waiting Tists for emer-
gency services providers appear to t>e a relatively new phenomenon, and are
more typically found where requests have been made for furniture, housing
assistance, weatherization and mental health or substance abuse counseling.
For more urgent life-threatening emergency needs, agencies tend to refer
persons to other providers rather than place them on a waiting list

Agency Funding

The typical" respondent provider receives funding from a variety of sources.
(See Rgure 3.) Eight of ten respondents utifize private donations, but less
than 20 percent are solely dependent on them. The federal government is
another major source of funding for the respondents. Sixty percent receive

Figure 3. Funding Sources of Average Provider

Percent of Tunding

B881 Private Oanations

^2 ^e^^e-a"

Siote Go-/t

t I United Woy
Other

FT] Uoed Govt
[\N roundotiona
I I Fees

171

PROFJLE OF CUENT POPULATION

Demographics of Persons Served*

For the average respondent provider, almost one-quarter of the persons -
served are under the age of 20. with one in two of the agencies reporting
that at least half of their clientele is 20 years of age or younger. (See Figure
5.) Using an estimate of the share of Michigan providers reached by the

survey, this finding suggests that approximately 125.000 children have a basic
emergency need each week in Michigan for which they, or their parents for
them, are requesting assistance from private emergency services providers.
This projection of children's needs is modest given that in many agencies,
persons requesting services on behalf of their children are counted as an
adult served; the children are not included in the count.

In the average respondent agency. 15 percent of the service population were
observed by providers as being disabled, with an additional 56 percent
observed as being only moderately healthy. (See Figure 6.) This would

* A significant portion of the respondent providers did not answer itie questicns regarding
sen/ice population charactenstics. Many of them reported that such information Is not
relevant to their provision of services and. therefore, they do not collect ft.

MLHS-9

172

LOCAL VIEW OF TRENDS AND FLTTURE CAPACITY
Pressures on the System

Trends over the last three years indicate that pressure on the private
emergency service sector is growing. Eight in ten providers report an
increase in the total number of persons served and 90 percent see an

Rgure 8. Trends in Service Needs and Funding Support, 1988-1991

# Turned _ Trod

Reauests t Rat

i Served

STAYED THE SA*4E

□

n 80

£ 60

S 40

<J
V
Q.

increase in requests for assistance from people who have not previously
needed help. (See Rgure 8.) Over two-thirds report an increase in requests
for repeat assistance as well, and half have been forced to turn away a
greater number of those in need. They appear more pessimistic, if anything,
than the providers in an agency survey the League undertook in 1982-83,
when slightly under half of the agencies reported that they could not keep up
with the increased demand. Fully 94 percent of agencies providing
emergency services felt increased demand during the economic downturn of
the earty 1980s.

During the current period, over 60 percent of the respondents have expanded
the number and types of services they provide, with a third citing increased
community demand as the reason. Other providers, however, are being
forced into financial deficit in order to continue to provide the current level of
services.

"Unless Increased
financial support Is
forthcoming, I don't
believe existing
resources can
accommodate
addlUortal demand."

Ottawa County

"HELPl"

Wayne County

Seventy percent of the respondents have seen a change in the characteristics
of persons requesting assistance in the last few years. An overwhelming
two-thinjs report sen/ing more persons with problems connected to their work
force participation, either under-employment (working poor) or unemployment.
Three in ten cite a rise in families seeking assistance. Other frequently
mentioned changes include: more young adults (14.5%). more people
receiving public assistance (10.2%). and an increase in homelessness (8.5%).
Relating to the homelessness question, a lack of affordable housing around
the state-particularly in rural areas-was frequently mentioned by respondents
as a major cause of hardship in their area.

lWlLHS-11

173

services, only a quarter of them predict that the community will be able to do
so. (See Figure 10.) Even more pessimistic, only 8 percent of those in rural
areas see any possibilities of added community support In certain
communities, organizations are trying to coordinate efforts in an attempt to
meet expected additional demands. These groups of providers are making it
quite dear, however, that this increased effort can only be maintained for a
short period of time, until more long-range solutions are developed.

Of those that believe that the community is not able to expand support one-
half point to a general lack of community resources, cesulting in reduced
private contributions.

Another 17 percent believe that, the demand for services will outstrip the
ability of the community to respond, while a small percentage feel that their
communities are just not interested in expanding to meet the need. Neariy
one in ten said expansion for ail emergency service providers will depend on
new funding sources, resulting in fierce competition for any available
resources in the private sector.

CONCLUSION

Environmental Factors

The League's survey of private emergency services providers in Michigan
cleariy demonstrates that there is a high level of need for emergency services
and that the private sector is currently handling a large number of requests
for such assistance. The survey also demonstrates that a growth in tiie need
for services is coupled with a decline in the resources available to respond to
that need. It is clear tiiat most emergency services providers are pessimistic
about their ability in the future to marshall the resources necessary to meet
additional demands for help witii such basic needs as food and shelter. The
resulting pressures on private emergency services providers are obvious.
The causes of these pressures are somewhat more complex and include the
following significant environmental factors:

♦ Changes In Michigan's economy have made It more difficult for
families to support their children. Higher-paying jobs in
manufacturing and the auto industry have disappeared, and been
replaced by lower paying service jobs. The earnings of substantial
numbers of workers have not kept pace with in-flation. Many families
cannot meet tiieir basic needs even tiiough one or more members are
employed, in part due to low wages, spells of unemployment or
involuntary part-time work. Nationally, between 1973 and 1986, the
real median income of young men fell 25 percent with high school
dropouts experiencing a 42 percent decline and black men a 44
percent loss. The survey confirmed that a large percentage of
persons seeking emergency assistance are connected to the worit
force.

♦ Poverty, and particularly child poverty, Increased during the
1980s. The child poverty rate increased nationally by 21 percent in
the last decade and by 53 percent in Michigan, primarily in response
to economic and labor market changes affecting families. This rate is
further exacerbated by changes in family sti-ucture. Marriage rates are
declining, and children are increasingly being raised in single-parent
families, where they are at much greater risk of poverty. Nationally.

nMth the demand
for services In-
creasing drama-
Vcally, It Is Im-
possible to expand
programs without
expanding financial
support"

Ingham County

"Resources . shrink-
ing—community
concern contract-
ing."

Washtenaw County

MLHS-13

174

• The Emergency Needs Program (ENP> was reduced by (1)
prohibiting payments for water and sewerage service: (2) reducing
or eliminating allowances for major appliances; (3) reducing
payments for burials, and (4) reducing supplemental shelter
allowances for single individuals.

• Special emergency needs contracts were reduced.

The Children's Defense Fund (Washington, D.C.) estimates that the
declining effectiveness of government programs in pulling families out
of poverty accounted for 42 percent of the increase in poverty rates
for families with children between 1979 and 1987. Our survey
confirmed that-even prior to the 17 percent reduction in AFDC and
GA grants in March of this year-certain agencies were experiencing a
rise in the number of public assistance recipients seeking help from
private emergency providers. Between 1980 and 1991. the purchasing
power of the maximum AFDC and GA grant in Michigan fell by
approximately 28 percent As a result prior to the March grant
reduction, less than one-lhind of AFDC recipients and approximately
one-quarter of GA recipients received enough in their shelter allowance
to cover their shelter expenses. It is anticipated that the grant
reductions will jeopardize the housing arrangements of many public
assistance recipients, and that homelessness and requests for
emergency shelter will increase.

The Governor has recommended that the current General Assistance
and Job Start programs be eliminated, ending all income support for
over 98.000 persons statewide. If this "last resort" assistance program
for persons ineligible for other assistance is eliminated, private
emergency services providers could experience a substantial surge in
requests.

Finally, the Governor has also recommended that all special energy
assistance programs be eliminated in fiscal year 1992, and that the
Emergency Needs Program be modified. Funds cun-ently spent on
emergency needs would be combined into an Emergency and Medical
Needs Block Grant to the counties, with total funding reduced by
approximately 70 percent. The funds for reimbursement to private
agencies providing emergency services would be sut)stantially
diminished. Control over the resources would be shifted to local
governments, which may be sorely tested by the need to both create
an administrative stnjcture for eligibility determinations and manage
extremely limited resources in the face of growing demand.

Solutions Not Readily Apparent Nor Easy

Given the above environmental factors and what appears to be a level of
unmet basic need which is broad and deep and affecting large numtiers of
citizens in every comer of the state, an adequate response on the part of
public and private decision makers will be neither easy to fashion nor quick to
implement Taking the first steps toward a solution, however, is critical to the
state's economic survival and competitive standing in a rapidly changing
world.

"When it comes
down to what Is
really needed, this
may be beyonc
what private groups
can do."

Gr. Traverse Count)

MLHS-15

175

Appendix A

URBANmURAL DIFFERENCES

For purposes of this compariscn. all providers in the targeted counties with a 1990 Census
population of under 100.000 are considered mral; the remainder are considered urtian.

1. Caseload Size: For obvious reasons, the majority of respondent rural providers
serve smaller numbers of people, although* the average number served per week is
similar (243 urtjan vs. 214 mral).

Number Served Weeklv % of Respondents

Urban Rural
<50 37.6 58.1

2. Service Provision: The most frequently reported mral sendee is heating/utility
assistance, while in urban counties it is food boxes.

Type of Service % of Respondents

Providing the Service

Urban

Rural

Food Boxes

60.5

46.9

Shelter

41.5

56.3

Prepared Meals

35.4

28.1

Heating/Utility Assistance

34.9

59.4

Substance Abuse Services

19.5

3.1

Child Care

12.8

25.0

Mental Health Services

12.3

3.1

3. Client Characteristics: More mral clients are employed, and enjoy better health.
Relationship to Laborforce % of Clients

Urban Rural

Employed 27.1 40.4

Unemployed 72.9 59.6

Health Status

In Good Health 29.9 46.3

Compromised Health 54.7 43.2

Disabled 15.4 10.5

MLHS-17

176

APPENDIX B

COUNTIES SURVEYED

Targeted Counties

Alpena

Bay
Berrien
Chippewa
Genesee
Grand Traverse
Ingham
Isabella
Jackson
Kalamazoo
Kent
Lake
Lenawee
Macomb
Marquette
Muskegon
Oakland
Sagiriaw
SL Clair
Wayne

Additional Responses

Clare

Clinton

Gratiot
Kalkaska

Mason
Montcalm
Washtenaw
Wexford

7/1 l«lA.rpS<ya3Wjafpkftnl

MLHS-19

177

Predictions

An oveiwhelming 93 percent of the respondents predict that they will be confronted with added requests for
assistance in the future, with nearly 60 percem needing to jimit services even further and
j wai be unabie to serve. Nearly one^iuarter also added that the amount of services ava3able wiH dedine with
I increasing needs, and some predict they will be forced to redeime their en^ One of the agencies

resurveyed had dosed.

I Despite the fact that over half of the respondent providers reported that they woukl be abte
I future changes, they had resen^'ons about this abiTity. Of the half that said yes. nearly 30 percent quaiiiied this
answer by conditioning more assistance on increased donations or other funding increases; another 20 percent
qualified their answer by adding they could only cope with great difficulty or by limiting or ending some services
temporarily, if not pemianently. A few providers answered that their ability to respond would be dependent upon
whether other providers could pick up some of their slack.

I Of all the respondents, nearly a thinJ reported that the time was fast approaching when they would be forced to
I redefine the functions of their organization: they would have to prioritize and make major programmatic changes,

possibly no longer providing more costly services such as shelter or transportation, or limiting food assistance to

fewer times per week, or per month.

addend.pk2

178

180

COTS MONTHLY STATISTICS

■3 TH OF August 2551

repared by: Cherry Stallworth

ACTUAL

MALE

1 FEMALE

MALE

FEMALE

* INTAKES

ADULTS

107

1 91

CHILDREN

TAL NEW INTAKE

2Sa (*ADI 8.6)

lOR MONTH CARRYOVER

ADULTS

1 50

CHILDREN

TOTAL CARRYOVERS 155_

TOTAL SERVICED /MONTH

423

UNABLE TO SERVICE ADULTS

62 1 175

CHILDREN

184

TOTAL UNABLE TO SERVICE

423 **il3.6 ADTA)

A^fERAGE LENGTH OF STAY (SINGLE PERSONS)

4,776/241

19.8 davs

3cD CAPICITY UTILIZED

4,712/4,340

108X

G NERAL STATISTICS
RELOCATIONS

T-RMINATIONS

160

NEW INTAKES

- -ADMISSIONS ADULTS

. 35

CHILDREN

TOTAL RE -ADMITS

£ ACK

102

WHITE

yTIVE AMERICAN

1 SPANIC

UIHER

■!• -erage Daily Intakes ** Average Daily Turn -Away s

Pg 2 —

JTS MONTHLY STATISTICS AuQUSt 1

thru AuQust 31

1991

REASON FOR SEEEKING SHELTER

ACTUAL

— —

vi c ti on /Landlord

28.7

'y ction /Friend or Family

30.0

'dieted AFC/Home for Aoed

0.5

.'o Residence /No Income

16.6

\ ibery

2.0

■rison Release

0.5

'. msient (Out of City/State )

1.5

-lasoital /Treatment Release

3.0

h 1 Outs

3.5

■J Hi ties /Shut Off

1.5

^buse

J. safe Li vino Conditions

9.0

Ither

2.5

\ TAL INTAKE

198

99.3

I ^TED:

Tntal # Of Substance Abuse

"utal # Of Mental Health Related

=? -vised 12/13/90

Qy/ 16/91

0 completed

182

COTS MONTHLY STATISTICS

1S91

repared by: Cherry Stallworth

fiCTUAL

DULTS

MALE

FEMALE

MALE FEMALE

107

■30

23.7

21.7

1-50

28.2 1 22.7

V -over

2 1 1.5

HILDREN

:j-I7

TOTAL CHILDREN

100%

1 'ERANS

■P-^AL FAMILY UNITS SERVICED

4Q(N) + 24(C)=64 serv.

20 N

; 1ALE HEADS OF HOUSEHOLD

40 N

100

<mlE heads OF HOUSEHOLD

zOTH PARENTS PRESENT

" ;. NO. CHILDREN PER. FAMILY (N)

i.J

.J. LENGTH OF STAY FAMIUES ( *IC )

1266/64

20 days

ADULT GRADE LEVELS

' T

ith

2.5

6.5

15.1

25.2

'^ioloma/CED

47.9

2 yrs. COlleoe

: 4 /rs Coiieoe

.'nanswered

C = carryovers /V = nen intakes *IC = includes carryovers

183

Med - Law Associates, p. c.
-^^^-^ ^^^^^

October 11, 1991

Representative David C. Hollister

State of Michigan

House of Representatives

Suite 560 Roosevelt Building

Lansing, Michigan '

Dear Representative Hollister:

We are writing you because you seem to be one of the
few people who understand the enormity of the mistake
Michigan is committing with respect to the General
Assistance recipients who have been left with no source of
income or support. We have some observations of this
situation which we have not heard others mention and would
like to share them with you for whatever value they may be
in your efforts to restore financial and medical
assistance to people who do not have the ability to care
for themselves.

We are lawyers and social workers who have worked a
total of 30 years within the Department of Social Services
and with General Assistance recipients. A significant
portion of our work now consists of representing clients
in their efforts to qualify for Medicaid. This service
is sponsored by hospitals which have cared for indigent
patients without compensation.

Over the past 2-1/2 years our organization has worked
with well over a thousand clients. Approximately
two-thirds were so-called able bodied GA recipients.
To date more than fifty percent of these people have
qualified for Medicaid for the disabled. Approximately
one-third qualified based on a mental impairment.

These findings comport with the experiences of one of »
the undersigned, while she was a Client Advocate within
the Department of Social Services. In that job, she
conducted a pilot study at the Ingheun County Department of
Social Services. In that pilot, so called "able bodied"
GA recipients (non-Medicaid) were selected for evaluation
after they tried unsuccessfully to qualify for
Supplemental Security Income (SSI) through the Social
Security Administration. Once these clients' impairments
were properly documented, approximately eighty percent
were found to be disabled.

184

This pilot (and a similar study performed in Kent
County by Gary van't Hul, an administrator there) led to a
statewide "GA Initiative", as it was called, to identify
disabled people among the GA population. These people
were to be identified through a survey form completed bjr
each worker at time of case opening or case review. In
the few counties where the initiative was taken seriously,
the results were dramatic. Many disabled people were
identified, qualified for Medicaid and then for SSI. The
results were impossible to refute; there were large
numbers of disabled people on General Assistance.

In our current work, we have had an opportunity to
take a very close look at large numbers of GA recipients
and at the DSS process. What we have found has led to
the inescapable conclusion that the course now being taken
with these people is wrong and is bound for disaster.
This conclusion is based on our observations that large
numbers of them are not only incapable of self-support,
but are incapable of demonstrating their eligibility for
benefits.

What we see is that many people have been
characterized as able bodied by default. This has
occurred for several reasons. First, these people have
not had the wherewithal to leap through the challenging
hoops which DSS sets up for anyone who tries to qualify
for Medicaid. Second, they may not have even attempted to
obtain Medicaid because they didn't know they were
disabled. This is often the case with people who are
mentally impaired. It is our impression that the most
severely mentally impaired can seldom negotiate the system
well enough to qualify for Medicaid.

The barriers to Medicaid are significant. A few of
them are as follows:

1. We have frequently been told by clients that a DSS
worker told them they were not eligible for Medicaid and
thus discouraged filing.

2. The application form is 28 pages. It is daunting to
someone with minimal education. It is sometimes confusing
even to us — and one of us helped design it.

185

3. The verification requirements are often
insurmountable. We have attached several actual
verification check lists which were sent to Medicaid
applicants. Claimants are given 10 days to procure all
the items, many of which are unavailable to them. We have
seen many workers check off every box and then deny people
for not returning the verifications requested, even those
which were not appropriate. It is an easy way for an
overburdened worker to reduce the workload. "

Verifying the presence of a disabling condition is a
special problem. The DSS Manual directs that, when
needed, the worker is to assist client with scheduling a
■edical examination appointment, paying for medical
evidence and/or medical transportation. (PAM Item 815,
page 5), but in reality the workers do not have time to do
this. The clients are merely given the forms to take to
the doctor. These people don't have doctors who will fill
out the required forms given to the client by DSS. Even
vten the client has a doctor and gives the doctor the
forms to complete, they are seldom returned to DSS within
the 10 day limit. This factor, which was completely
beyond the client's control, results in the Medicaid
^plication being denied for failure to supply information
even though it was not possible for the client to
personally provide it.

As you can see, the DSS system is extremely complex.
Its complexities overwhelm many disabled clients so that
they never become entitled to programs which would
identify them as people who should be placed in a
protected class.

We are well aware that changes in the General
assistance program were needed. But these changes should
lave been made with consideration of the condition of the
people being affected.

The new SDA program which was contrived to fill the
gap left when GA ended, will not help the people we have
fescribed. To qualify medically for SDA, one must be
incapable of performing "any remunerative work" . I have
been personally told by people within the Medicaid program
that the word from Mr. Miller is that people who are
capable of even $1.00 an hour babysitting will be
ineligible. This standard is far more severe than the

186

,4^nt's ability to perform
Medicaid standard where the c-*^*?" criterion,
"substantial gainful activity" is ^"

0 ««veral "able bodied"
I aa attacMng «Jtetcb«s of ^^-e only pending

former CA r«cipi«ts. Tti«»e P*fEiTeation and provided the

t'^?*?ir*?? *• IHOf «^P^ tine to obtain

would be helpful, liS^ure it could be provided.

If there is anytning else we can do to support your
efforts, please call-

Sincerely ,

Ellen M. Hart Marsha E. Wood

Attorney at Law Attorney at Law

P.S. We are puzzling over a DSS Program Policy Bulletin,
Numl^er 91-8, which we received yesterday. it refers to
continuing medical coverage for GA recipients, but we know
fron the dozens of telephone calls we have received that
there is no medical coverage for these peoole at this
t:i»e. A copy of PPB 91-8 is attached.

187

GA'MEDICAL AND STATE MEDICAL PROGRAM
COMPARISON

MEDICAL SERVICE

GA MEDICAL *

BASIC
COVERAGE

UMITED
COVERAGE

Physician
(M.D./D.O. )

All services
(No copayment)

Most ($2.00
copayment )

Limited ($2.00
copayment)

Pharmacy

Drug formulary
($.50 copayment)

Drug formulary

($1.00
copayment)

Drug formulary

($1.00
copayment)

Laboratory

Yes

Limited

Radiology

Yes

No -'vi^^

Outpatient
hospital

Yes

Most

Medical supplies

Yes

Most, excluding
those needing PA

Emergency
transportation

Yes

Ambulance
transport to ER
only

Nonemergency
transportation

Yes

Dental

Yes **

Hearing

Yes

Vision

Yeb

Family Planning

Yes

Home Health

Yes

Durable medical
equipment

Speech,

occupational

therapy

• The GA Medical Program also describes the Wayne County CountyCare Program. In addition,
CountyCare includes inpatient hospital care.

*" The CountyCare Program includes a capitated dental coverage. The GA Medical Prograa was a
fee-for-service dental coverage.

-5-

188

Prepared by Office of Rep. David Hollister (D) Lansing, Chair
Michigan House Social Services Appropriations S-iiico=ittee

GA AXD JOB START PACT SE22T 1/11/91

What Ara C^^aral Aaal-t^wngg and Job Srart?

General Asslstajica (GA) is a cash asaist^c* prograa for lov-incoa*
parsons vit^ lua t^an $250 in assacs.

GA racipients are not eligible for ATDC because they do not have
childran or else do not meet federal recfairaaents for AJ^C- -
Unaaployed because of insufficient prior work experience.

GA recipients are not eligible for SMppleaental Security lacone
(SSI) either because they do not aeet the age criteria, are not
blind, or have not been determined to be disabled. Marty recipients
do apply for SSI disability ar.d are eventually found to b«
eli9ible. The state is reixbursed by the Federal govamxest for
General Assistance pxaysents sade to such persor^ vhile they vera
avaiting SSI eligibility deteraination.

The average aoathly GA cash benefit in FY 19 8 9-90 vas $217 for
cases vithout children ar.d $4 58 for cases with children. GA
recipients are also eligible for the General Assistance Medical and
Resident County Kcspitalizaticn program. In sany counties, the
aedical coverage does not include hospitalization.

Persons aged 18-25 who reet General Assistance eligibility
requireaents in six counties (Genesee, Inghas, Kalanaroo, ]<us)cegon,
Oakland, a.-.d Wayr.e) are required to participate in the Job Start
prograa, a aancatory e=plc>'rent and training prcgran initiated on
a pilot basis in FY 1539-90. Participants receive training
allowances averaging S196 a ncnth vhile participating in education
and training activities, but are not eligible for General
Assista.ice if they do not participate.

Who Are general Assistance Recipients and rhere Do Thev Liv?

S^X ?f HgVgS^?:^ Race cf Hcusehcld Head Ace of Household Head

Male 57* White 52% 21 t Under 9*

Feaale 43% Black 44% 22-40 57%

Other 4% 41-54 23%

55 6 Over 11%

Over 2 0% of General Assistance recipients are children. Figures
for October, 19 9 0 for the state and selected counties are:

Cases

dren

Adults

Statewide

98,394

152,564

,332

120,232

Wayne

48,166

62, 354

,749

53,605

Genesee

7,434

15, 294

,807

10,427

Inghaa

2,255

4,611

,475

3,146

Saginaw

4,051

8,287

, 618

5,669

Soseouen

307

491

108

383

Karquette

. 464

741

141

600

Berrien

1,222

2,147

588

1,559

(21.1)%

(14.0)

(31.4)

(31.9)

(31.5)

(21.9)

(19.0)

(27.3)

Roughly half of the General Asaistanca population resides in Wayne
County. However, Wayne County's portion of the total state
caseload has declined by 14% since 1981.

Caseloads have increased substantially over the last year, with the
greatest increases in cutstate counties. Data for the counties
with the largest November, 1989 and 1990 caseloads are attached.

189

Ta Vhrnn gTrt.nt; Ar> C^nm-rul >^«iMtanea B«etpl«nt» EBPlQVabl«?

in addition to physical and aancal capabilltiaa, th« kays to
aaploymbility ajra educational laval asd aaployaant a3cp«ri«nc«. Tho
•dneatioa aad aoaployMnt axp«rianca lavala for Canaral Aaaiatanc*
raciplanta ia mM follova:

gdueatlon gaTalovrngnt; -^^romri mr,^^

Laaa than Bigh School Oiploaa 49% 61% hava no hiatory oC aaploymant

High School Diplo&a 41% 6«% hava not vorkad in tb« last

fiva yaars

Sena Collaga 10%

Only 15% of all Canaral Assistanca raeipiants aaat tha Armad Forces
racrtiitiBg criteria. ^

Another Kay factor in dataraining aligibility ia the availability
of jobs in reeeoneble proxiaity to vhare recipients live:

• The clear end powerful relationship between General Aasiefance
caseloads and mMsployaant rataa ia veil known. General Asslstane*
caaeloads are Bsaelly the highest in counties and cities with tbm
highest uneaployment rates. For example, there are already large
nuBbers of applicants for each available job opening in Detroit and
many other areu with large numbers of raeipiants.

* To the extent that \inaaployment rates are high. General
Assistance recipients who are successful in finding jobs aay simply
displace other vorkers with marginal skills.

There have been several studies of General Assisrance recipients in
Michigan ever the past several years. All have emphasized the
importanee of education and training in making recipients
employable.

The apparent villingness of CA recipients to participate in
education and training activities has been demonstrated by Job
Start. Tha op-out and sanction rates have been lower than
anticipated Ir. this program, and participation rares have been
higher than bv:dg«ted. Over 11,000 18-25 year olds now are
receiving educacien and training in the Job Start coxmties.

CmXAAZ. ASSXSTANCZ CA5ZLOA0S
NOVXKBUl 1989 - KOVXKBZR 1990
OOOMTZZS WZTH CA CXSZLOASS XBOVX 1,000

Bar

MOV ^9

NOV 90

MOV 19-MOV 90

1,«93

1,«S2

-2.4%

1,01S

1.272

25.3%

1,913

l,9ft2

t.a%

«,9C0

7.577

• .9%

2,079

2.223

11.7%

1,137

1.272

11.9%

l.SOS

1,4«S

-1.3%

1,97«

2,a9«

21.1%

1,S47

1,90S

23.1%

1.4««

1,4«<

0.1%

a, 79ft

3,37ft

30.7%

4,07a

4,320

3.5%

1,297

1.4ft9

13.0%

■22

1.02S

24.7%

4S,442

49,032

7.9%

7S,ft27

•2,420

9.0%

17.701
93,333

19.193
101. •13

• .4%

• .9%

58-688 0-92-7

190

DEJCCRAPHIC PROFILE
General Assistance Adult pro9r«ii

Jok Skint

J4 n

l«tt Fi«t Tttrt It Jo*

Skni ti.ai

lev SkiH ■■

),»« ikiii

71 n

••4 Skill (retii)

ij.st

KC4 Sk>n

• itlM

j.«

• tUil

11 It

flCtOr; work

4.n

r^eiory work

f094 $«r*iet

s.si

roo4 $tr«ici

SS IS

CUncll

9. St

CItflCll

14. *»

Iwllliif Stfiict

13. it

Icplir and It4| S«r

Sl.K

Cr>\U Cl'l

1.41

CMltf Ciri

4? It

MiietlliAieui

unctnanteut

4f.7t

Mifh Skin

4 3«

Mlfh Skill

si.n

Cwrtftf im flM Ttkft Pwrtftj Hit f l<t r«»rt ltc«»lwtl CayltyH Owfliio latt

ty /m C^ycittan tt^fl f«M la>r» >y l»cni><i awd lace

• « «.» uo^t / SU - J2.7t *-WF •

• 30 SS.It «th - tth 2f St Cowwtm VajBt
- 40 Sl.lt 9th - lltft 39.lt WhUt tl.U THi

• S4 S!.4t \2t> Sl.2t lUck 41. II 31. ]t

• «4 31.4t Sm Celltit ;3.1t Other sO.Ot «S.St

Marital Statwi

0<»ore?3 24.31

Ka-rua 10.41
KtTir mrrlH «| tl

Stparittd 11 4%

Vido«t4 $.21

Cduotlon Letil

Nona * atn 4.41

6th • Itn 9 81

9th 'llth 34 41

12th 41.31

Scat CoHcit 10.41

PffLOYMEKT KISTOItT

• l.€t w«rt e«pley«d.

« CO.lt had no hittory of «apleystAt. Tht aijerity indie«t«d thty h«v« itet b««A
•Mploycd during tht last five yoaci.

SAM ! ens TO sgtf'SorrtciPicT

« 20% raquirad cart for dls«blad adulta in thair heusthold for thts to work.
^ 22.2% had aoM fees of physical lisltatioA

• 21. f% had no aectti la transportation. 32.7% had a privata vthlelo. 31. S% had
acetaa to pgblle tranapertatlen.

• S.1% Indieatad'thoy had aarlous sanial lllnassas.

• Indieatad they hava rtcaivtd substanea abust tctatntnt.

• 11.2% of all GA eaeipitnts had at laast ona of thi following barriers hindaring
thalr ability to worki

Physical liaitation Lack of transportation

Mental health prebleas Criainal record

Subatance abusi problaoa Lack of adueation

lew ieb ekins -# -..w

191

United States General Accounting Office

Report to the'Cliairman, Committee on
Finance, U.S. Senate

MEDICAID
EXPANSIONS

Coverage Improves
but State Fiscal
Problems Jeopardize
Continued Progress

192

( hapter 't

States Responsive to InitiativM TarRetins
Luw-lncome Women and Children

Table 2.2: Average Annual Percentage
Growth Rates for Population. Medicaid
Recipients, and Expenditures (1984-89)

Population/ recipients/
expenditures

Total pODuiation

'/edicaid recioienis

AFDC Medicaia recioients

ledicaia exoenditures

VFDC Medicaid exoendiiures

These f»rowth rates signify that the quartile that was most in need of
improvement consistently ser\'ed more afdc as well as total recipients
rhrough Medicaid in 1989 thzm in 1984. The opposite trend is observable
in states that in 1984 generally had the most comprehensive Medicaid
programs in terms of eligibility and resources expended. For this quar-
tile. AKDC recipients declined in absolute terms as well as relative to an
essentially stable total, as shown in table 2.3.

Table 2.3: AFOC Recipients as a
Percentage of Total Medicaid Recipients

F-scai Vear i984-89>

Fiscal year

Most limited L
quartile

east limited
quartile

National
average

•984

62.5%

-2 9%

71 6%

•985

62.7

"22

71 4

■986

630

-1 5

71 1

•987

530

-0 3

-0.4

■ j38

54 1

-0 2

■ ^89

^5 3

-~j 4

-0.5

Expanded Services to
Women and Children
Not Primary to Rise in
Medicaid
Expenditures

In general, the states do not perceive expansions targeting pregnant
women and children as the primar\' factor in rising .Medicaid expendi-
tures. The states recognize the potential benefits of such expansions.
\ iewing prenatal and child care as a worthwhile social goal. In many
instances, prenatal care serv'ices were already provided, using state and
local funds, so savings resulted when the new legislation authorized a
federal match. .Moreover, the health care needs of these groups are rela-
tively predictable and cost-effective. There is evidence of both short-
;ind\long-term savings in health care costs from the provision of
prenWal and preventive medical benefits.'

.\n Institute "I Medicine study — Preventine l.ii)W Hinhweight i Washincion. U.C . Nidional .\cademy
IVpss: 1II8.T 1 — r cpoired .S:5.38 savines lor even- ■< 1 t-xpended on prenatal i are .Also, each dollar spent
■n childhoon immunizations hiLs been shown rn save more than ■> ID

Page 2fi

(;A0/HRD-91-78 Medicaid Expands: Fiscal Problems Moont

193

Chapter 2

States Kesponsive to Initiatives Tan<etinR
Low-Income Women and Children

As the results of our study confirmed, relative to other groups these
recipients did not cause major cost increases during the 1984-89 period.
Children are the least costly of all Medicaid recipients: their per capita
expenditures for medical services in fiscal year 1989 were S699. Even
the larger category of afdc recipients, while costing more per capita in
1989 than in 1984. still constitutes a relatively inexpensive group to
serve. For afdc recipients as a whole. 1989 per capita Medicaid expendi-
tures were S867. compared with an average $2,318 overall. They con-
sume a much smaller percentage of Medicaid expenditures than would
be accounted for by their proportion of the .Medicaid population ( see
fig. 2.n.

Nationwide, afdc recipients accounted for less than one-third of the
growth in .Medicaid expenditures between 1984 and 1989. as shown in

Page 27

(JAO/HRD-91-78 Medicaid Expands: Fiscal Problems Moiuii

194

( hapter 2

Sutes Responsive to Initiatives TanietinR
Low-income Women and Children

table 2.4.'^ The elderly and disabled population generally is more expen-
sive to serve and has grown at a faster rate. Between 1984 and 1989.
this segment grew from 24 to 27 percent of Medicaid recipients and in
1989 accounted for 73 percent of the expenditures.

Table 2.4: Expenditure Growth
Attributable to AFOC Recipients

-^scai fear 1984-89)

Fiscal year

AFDC increase as percent of total
increase in Medicaid provider payments

1984-85

23.8"!'

•985-86

28.3

■ 986-87

30.6

•987-88

20.5

■988-89

54 5

•984-89

28.3

Also serv ing to minimize the cost to the states of expansions for preg-
nant women and children is the fact that, in many instances, prenatal
care and related services already were provided, either under previous
.Medicaid options or using state and local funds. A 1989 study found that
43 states had implemented 1984-89 expansions targeting pregnant
women and children.'' Of these. 17 financed the expansions in whole or
in pait by transferring state funds from their public health /maternal
and child health budgets to their .Medicaid budgets." The states have a
dear— and acknowledged — incentive to maximize federal matching
lunds by means of such transfers, but we have been unable to document
the dollar amount involved nationwide. '

'IIowpvtT. the increase a-ssociateiTwith thi.s group wa.s sliahtly liither th;in ime-third iif the total
.;i-owth for 1988-89.

Kiix Health Policy t'onsultant-S Inc.. .State Strategies mr Kinancing .MtHlicaid K.<pan.sioas to .Meet the
Ni'eds oi' Children and Pregnant Women. .Aug. IH89

' Mir cxst- study states differed in this regard. .Maine niaae such a ii anstcr. while Smth Carolina did

"states generally employed a combination ol funding approaches for these expaasions. Thirty-three
-tales used new appropriations, in coniunction with transfers between programs. a.s part fif their
!imding mechanism.

Page 28

GAO/HRI>-91-'8 Medicaid Expands: Fiscal Protriema Motuit

195

hliij y

Mr. K. . age 46.

Mr. K. suffers with Colo-rectal cancer with bony destruction
of the sacrum and coccyx on the right side resulting in
surgery with a colostomy 3 months ago. He is now undergoing
chemotherapy.

Mr. K. is functionally illiterate, and has always been a
laborer.

His Medicaid application has been pending since 8/30/91.
His GA and GA-Medical have been terminated.

KT^ P-» age 32.

Mr. B. was hospitalized with a collapsed lung and pneumonia
in June, 1991. In addition, he suffers from a seizure
disorder which is not controlled by medication.

He requires heavy doses of antiseizure medications daily.

Mr. B. does not drive due to recurring seizures and has a
slow reflex response due to medication.

His Medicaid application has been pending since July 1991.
His GA and GA-Medical have been terminated.

Mrs, p.. age 60.

Mrs. P. was hospitalized in March 1991, for chest pain. She
is an insulin dependent diabetic who also suffers from high
blood pressure, severe arthritis, and reflux disease.

Mrs. P. does not read, write, or speak English, nor does she
read or write Spanish. She only speaks Spanish. She never
went to school and never worked outside the home.

Her Medicaid application has been pending since 5/6/91.
Her GA and GA-Medical have been terminated.

Mr. A. . age 49.

Mr. A. was hospitalized in June, 1991, for cancer in his
left kidney resulting in surgery to remove the tumor and his
spleen, followed by pneumonia. In addition, he is an
insulin dependent diabetic and has high blood pressure.

He has had back problems since a severe fall at age 18. He
now has difficulty standing after he's been sitting for
awhile.

He has been on antibiotics for recurring lung infections
since his surgery. Mr. A»s regular physician is refusing to
see him because he does not have Medicaid coverage.

He has a lOth grade education and has always done farm work
or trash routes.

196

MS. M.. age 43.

Ms. M. has had frequent hospitalizations and emergency room
admissions for complications related to her insulin
dependent diabetes of many yeaurs.

She has constant nxmbness in her hands and feet; her feet
are classic diabetic neuropathy changes, as are her hands.
Her feet swell and she has problems buttoning her clothes
and holding items in her hands.

She has had chronic diaurrhea for nine years, and has
episodes of blurred vision, both complications of her
diabetes. She has a 9th grade education.

Her Medicaid application has been pending for 20 months. We
are now awaiting a decision from the Biireau of
Administrative Hearings. Her GA and GA-Medical have b&en
terminated.

Mr. J. A., age 56

Mr. J. A. is a resident of an Adult Foster Care Home
following surgery to replace a heart valve. He suffered
fainting spells following the surgery and was no longer able
to care for himself.

Mr. J. A. has severe emphysema, he requires heart
medications, blood thinning drugs, and continued treatment
for both his heart and his emphysema. He is currently out
of medications.

His application for Medical Assistance was filed 5/21/91
and is still pending. We understand that his GA was
terminated despite the fact that he is a resident of an
Adult Foster Care Home.

Mr. J. B.. age 55

Mr. J. B. was hospitalized in July and August 1991 for chest
pain which was diagnosed as unstable angina. He also has
diabetes and a possible malignancy.

He requires three prescription drugs for his heart and one
for his diabetes. His application for medical assistance is
pending. Mr. J. B. 's GA has been terminated.

197

"More face evictions after cutoff,"
Lansing State Journal.
Fri., Nov. 1, 1991, at lA.

More face
evictions
after cutoff

Staff and Wire Reports

Housing advocates are expecting a (lood
of evictions now that a month has passed
since welfare benefits were cut off to able-
bodied adults.

In Lansing, agencies that work with the
homeless are seeing double or more their
usual caseloads.

■ The Community Service and Referral
Center is helping 5u households whose oc-
cupanis are facing eviction — up from :i
typuMl nionlh of five or six.

■ Ai Hurvest House-Lansing Street Mm-
i:>;ry on Michigan Avenue, 25 to 30 people
have been showing up for daily menls and
religious services, muking Octobfr its
busiest month in three years.

■ Leual Services of Ceniral MtrhiKaii
has many calls from rn-npif wiin w:ini hrlp
fiChiin^ eviction.

Uul those who simply clun'i li;ivir ilic
money ran t be helped, said director Dmuk
Slade. "They're automnticnity Koini; n»
lose when tnuy go to court. An aliorncy'.s
presence at a hearing won't make a bit of
difference."

Shirley Johas at the referral center said
she's urging clients to go through the en-
tire eviction process — right down to a
police officer arriving to give them a
choice of leaving or beinK arrested for
trespassing. That can take as lonit ii-s .10
days, Slade said.

Johns hopes courts will be backlogged
with evictions, giving tenants more time.

"The longer we can keep somebody in u
home, the greater the chances are of nui
freezing." she said.

Not all those being evicted are people
who lost general assisunce money when
the program ended Oct 1: some are 'peo-
ple whose Aid to Families with Dependent
Children grants were cut; others have had
cuts in Social Security.

At Harvest Home, the Rev. Marcellus
Love said his staff can't keep up with de-
mand. And more of those on the streets are
mothers with children, who need shelter,
food, clothing and diapers for Infants —an
Item he can't keep In stock.

"Donations are down. It's tight to per-
form our full service." Love said.

In Detroit, about S.OOO former general
assistance recipients are being spared
eviction from their downtown hotels while
landlords wail for a state appeals court to
rule on the end of general assistance.

The hotel ownen are waiting unUI at leasi
Tuesday to see If the appeals coun will allow
benefits to be reinstated to the 82.6H child-
less adults who lost benefits Oct I.

An Ingham County Circuit Court lost
month ruled against (he state and ordered
the benefits restored, saying the state had aol
prepared adequately for the shutoff.

The appeals court (ficn granted a tty of
thai ruling until me stale's appeal If decided.

198

Schabath, G.,

"Food program seeks support as more go hungry in Macomb,'
The Detroit News. Wed., Oct. 22, 1991, at 5B.

Food program seeks
support as more go
hmigry in Macomb

— -^^^ Smith said it becune eridcot

By G«n* Sehabath 'wwift7« ^ that Macomb was foinf

THE DETROIT NEWS to have Some faaid times feeding its

Officials from the Macomb Coim- -^""^^^j^'^ Aur«t. Smith
t'^^I^^.^J^'^l^^. «id3Pr requ.su forT«i came

I her desk alone.

for food and cash donatioBS in the
waJce of a dramatic increase in the
number of hungry in the county. — — .

The food program fed about 2.000 ■ ForiBferBatiea.todoaatottrto
needy families last year, but county
officials expect that number to at
least double this year because of
rising unemployment and cutbacks
in pjvemment assistince programs, |
said Melanie Chiodini, communica- j
tioM specialist for the Macomb Food
Program.

*It is just rough oat there because
of the (stau) budget cuts.' Chiodini
said. "We are finding that people are
poorer than ever before. We hava
three action centers, and they are
just being inundated «dth people
coming in asking for help.'

Chiodini said organizations and
office workers are urged to create
holiday food drive programs as a
means to not only feed the hungry
but also to make people aware of the
growing problem of hunger in Ma>
comb.

Chiodini said organiiatioos and
offices that cannot afford cash dona-
tions can participate by urging mam>
ben to contribute nonperiahaUe
food items. Individuals also can
make donations, she said.

The Macomb Food Program oper-
ates 45 pantries in the county. Per-
sons and families in emergency food
situations are referred to one of the
pantries for food subsidies. Clients
can get subsidies a lot easier than
they can in other government food
programs, which have stricter guide-
lines.

'People who generally fall
through the cracks can qualify under
our program.* Chiodini said.

Under normal conditions, the
pantries are used to feed the needy in
emergencies, but the recent tough
economic times has created a steady
stream of families and individuals in
consunt need. ofTiciab said.

'It's a Krave situation.' said Edna
Smith, coordinator of the program
and the only paid county worker

199

200

ATTACmiENT A
DECLARATION OF JANE DOE

I, Jane Doe, under penalty of perjury, say:

1. I live with lay three children, ages one, two and four in
a rented home in Detroit.

2. I have lived at this address for the past three years.

3. My rent is §250.00 per month and does not include heat,
electricity or water.

4. The sole source of income for myself and my three
children is through Aid to Families with Dependant Children (AFDC) .

5. My rent, electricity and gas payments are directly
vendored by the Department of Social Services.

6. After these payments are deducted, I am receiving a cash
grant for the month of May in the amount of $44.00 every two weelcs.

7. This is a reduction from my March and April grant amounts
which were $55.00 every two weeks. *

8. Prior to the grant reduction in March, I received $125.00
every two weeks, after the rent and utilities were vendored^ -

9. I do not have a phone or a car. I have been struggling
to survive since March.

10. Two weeks ago my water was shut-off.

11. When I contacted the Detroit Water Board, I was told that
the water bill was approximately $400.00 and that I would have to
pay that amount plus a SIO.OO service charge before the water
services could be restored. The Water Board would not agree to
accept a payment plan.

- 1 -

201

12. There is no way I can afford to pay this anount out of ziy
current Bonthly cash assistance grant.

13. I went to the Department of Social Services for emergency
assistance and was informed that the Department no longer pays
these bills.

14. I called ny landlord and asked him if he would pay the
bill so that I could pay him over time, but he said that payment
for water was my responsibility and refused to pay the bill.

15. Since then, I have been referred to a number of social
service agencies, none of which were able to help me.

16. I went to the Neighborhood Services Department for the
City of Detroit on Six Mile Road and Hubbard and was told that
there was nothing they could do to help me.

17. I called the Mayor's hotline and was told the same thing;
they could not help ne.

18. I contacted the Salvation Army. THey were not able to
help and warned me that if I was not able to get the water turned
back on, I could lose my children.

19. I called the St. Vincent DePaul Society but they had run
out of money and could not help me.

20. I called Catholic Social Services and they could not
assist me.

21. No one has been able to help us, except my neighbor
across the street who had been providing me with at least 2-liter
pop bottles of water every day.

22. I use this water to flush the toilet, wash dishes, sponge

202

bathe my children and nyself, cook and clean.

23. Since the City shut-off the water, the pipe in the ground
in front of ny house has been leaking and I watch the water run
across the walkway, down the driveway and into the sewer. I've
called the Water Board three times and they say they will send
someone out, but no one has come. I have seen water trucks in the
neighborhood often recently, but none have come to repair the
leaking pipe in front of my house.

24. The week that the water was shut-off, ny four year old
son, Anthony and I developed chicken pox.

25. My doctor recommended that I give my son aveeno oatmeal
baths to relieve the itching. Because I had no water, the best I
could do was to give him sponge baths, filling a plastic basin with
water borrowed from r.y neighbor in pop bottles.

26. Two of r.y children, the one year old^and the two year old
are still in diapers.

27. Until Kay 3, I had three in diapers.

28. Wednesday of last week, I buried my two month old
daughter, who I lost to sudden infant crib death.

29. I don't know how I can continue. I am depressed and
grieving. I have not been able to eat. My doctor prescribed
medication yesterday to help me sleep. I can't believe what has
happened to me. I keep praying for help. I know I must be strong
for my children. The four-year old asks me why we have to borrow
water from the neighbors and why he can't take a bath. I try to

- 3 -

203

hide my shame because I don't want him to feel it or to know how
worried I am.

30. For the past two days, the 8 0 degree weather has made
living without running water even harder.

I declare that the statements above are true to the best of my
information, knowledge and belief.

Dated

aa : \water \doe . dec

204

DECLARATION OF JOHN DOE

JOHN DOE, under penalty of perjury, says as follows:

1. I aa using the name of John Doe in this statement
because I was forced to sell my food stamps which is illegal and I
do not want to be prosecuted. I am 42 years old.

2. I live at 678 Selden, in the Cass Corridor area of

Detroit.

3. I have lived at this address for the past 8 years.
I share my apartment with another tenant. The apartment has one
room and a bathroom. Until October 1, 1991, we were both receiving
GA.

4. Since GA has been terminated, and after the GA
reductions in Augus-c, the manager of the building, whose name is
pronounce "John Vaugnville" has been extorting food stamps from
tenants in the building.

5. Since all of the mail for the building is delivered
to the manager, he is able to hold our food stamp cards. For the
past three months, he has been driving tenants to the food stamp
distribution center on Grand River to collect our food stamps.
Then he forces us to sell the food stamps on the street in front of
the distribution center while he waits in the car. We get 70 cents
for every dollar of food stamps. This month I collected $77 for
$111 in food stamps. We are then forced to turn over every penny
to him for rent. Because he forces several tenants to live
together in these two-room apartments, he is able to collect full
rent this way.

-1-

205

6. When I gave the manager my food stamp money this
month, I asked him if I could have a couple of dollars back to buy
a birthday cake for my son who turned 10 on October 11. John
became violent and with his fist, fractured my face beyond repair.
I was hospitalized, as a result.

7. John is able to control the tenants with an electric
cattle prod. The prod is like a long pipe with an electric shocker
on the end of it. He is threatening us with it. I have been the
victim of his cattle prod on more than one occasion. Once I was
hospitalized for a spleen injury because of the cattle prod. He
hit me with it because I invited some of my friends who are black
into my apartment.

8. I have filed police reports because of these
incidents but nothing has been done.

9. I have no income and no food stamps to purchase
food. I suffer from sclerosis of the liver, pancreatism, seizures
and I had a heart attack a few years ago. I am an alcoholic, and
have been hospitalized and received in-patient treatment at various
times in the past.

10. Before I gave the information for this affidavit, I
had never heard of State Disability Assistance- I will apply for
it. I believe I am eligible because I receive a monthly medical
card. I received one for October, 1991, but I did not receive a GA
or SDA check.

I declare that the statements above are true to the
best of my information, knowledge and belief.

Date joti^

206

1. I am a 41 year old resident of Oak Park, Michigan. I was
receiving General Assistance until I was cut off on October 1,
19S1. I now receive neither benefits, nor medical insurance. The
only income I have is food stamps.

2. I may be evicted from my home at any time. I have
already received two seven-day notices which I have been able to
stall by putting down small amounts of money. Since I owe $1200
and haven't paid my rent fully in over three months, it could
happen at any time and will by November 1st at the latest.

3. I am HIV positive and have not been able to see my doctor
who I am suppose to see monthly. I am also suppose to take AZT,
Bactrim, Dilantin and Motrin daily. Since I stopped taking my
medicine I have been in a great deal of pain and have felt very
tired. I am worried about the long term effects of not caring for
my medical needs.

4. I have received a shutoff notice for my telephone and am
due to receive a shutoff notice for my electricity any day.

5. I also care for my partner who is disabled. We will both
be homeless very soon. He was cut off GA and has no other sources
of income either. We have no where to go when we are evicted.

6. I have pending claims for SDA and Social Security
Disability but have no idea when, if ever, these will come through.
Ewi if they do approve me, it will probably be long after we
become homeless.

7. I applied for General Assistance in May. When DSS did

207

not respond ro my request for GA, I applied for a hearing. I
finally had a pre-hearing conference and was approved for GA in
July, 1991. I feel this was an unduly long time to wait for
approval .

8. The fact that I am going to be sick with no roof over my
head makes me very anxious and angry.

I declare that the statements above are true to the best of my
information; knowledge and belief. ^^m^

DATE

B2 : \saxon\Ferman.dec

208

CZCLXR^TIOy or ?AuL knoslocz

1. I am a 57 year old former recipient of General
Assistance. I was cut off general assistance on October 1^ 1991.
I am a resident of Detroit and have lived in this area all of my
life.

2 . I have a pending application for both SDA and Social
Secxirity Disability. I have no income. I live in a hotel and could
be evicted at any time. I am already behind in my rent and am
depending on the kindness of my landlady not to throw me out into
the street. I have never been married and have no children or
other relatives that I can depend on to give me a place to stay
when I am evicted.

3. I have many health problems and take five different
medications. I have congestive heart failure, alcohol liver
disease and a number of problems with my arteries. I have been
experiencing chest pains very often now and my heart is beating
very fast recently. I experienced chest pains yesterday (10/20/91) .
My doctor wrote a letter for me to give to Social Security and DSS
that says I cannot pull, lift, or push.

4. My last part-time job was five years ago. I am worried
about what will happen when I do not get the medicines I need. I
don't know what I will do if I have to be hospitalized for my heart
because no one will take me without health insurance.

I declare that the statements above are true to the best of my
information, knowledge and belief.

Date

PAUL KNOBLOCH

209

DECLARATION OF GySNDOLYN DOOLEY

1. I aa 41 years old, and live in Detroit, Michigan.

2. I have been working the last 20 years in four different
jobs. My last job was at New York Carpet World in data entry,

3 . I had to stop working because I was hospitalized for
asthma and then I was in a severe car accident and injured my
spine. As a result, I cannot sit, stand, or lay down for very long
periods of time. I take muscle relaxers for my spine. However, I
cannot afford to pay for the prescription. I currently have five
pills left. I am supposed to taJce two per day. I am only taking
one per day right now in order to make them last. I am in pain
because I do not have enough medication and I am bedridden most of
the day.

4. I have not worked in a year, since the hospitalization
for asthma and the car accident. I was supported by General
Assistance from December, 1990, until October 1, 1991.

5. Since October 1, 1991, I have not been able to pay for
my medications for the asthma without GA medical assistance. I
have not been able to breath well for two weeks. I cannot sleep
when this happens. I have been going to my doctor weekly for
asthma treatments so that I can breathe. I have a breathing machine
in my home that I use four times a day. I take slobid and
prednisone, and prevental for the machine, valentin inhaler, and
another inhaler berintin. The slobid costs about $10.00 per pill.
I take it twice per day. The prednisone costs $10.00 per pill and

210

I take four pills per day. The preventol for my machine costs
$125.00 per box vhich lasts about one week. The rwo inhalers are
$20.00 each and last about a month. I am worried that without GA
medical, I will not be able to pay for these medications and that
the hospitals will not take me the next time I have an asthma
attack, 6. I have received an eviction notice because I cannot
pay the rent and I have nowhere to go.

8. My gas is shut-off and I have no heat. I have received
a water shut-off notice, and am behind in my electric bill
payments .

9. I am extremely depressed and don't know what I will do.
If I could work, I would.

10. I have an application for Social Security Disability
pending. When I received the notice that my GA was ending, I
called my worker and told her I was too sick to work. She sent me
a form which I sent ro my doctor who filled it out and sent it back
to DSS. The form says that I am unemployable. (Exhibit ) But I
still am not getting state disability assistance. Saturday, the
Department sent me more forms from a medical contact worker, and I
received a whole new booklet, a 24 page application for assistance.
Apparently, I am supposed to take the book in on October 29th, when
I have an appointment with my worker, and I am supposed to take
back the medical form from the medical contact worker on November

5, when I have an appointment with her. In the meantime I have no
heat, my water is scheduled to be shut-off and I am likely to be
evicted .

I declare that the statements above are true to the best of my
information, knowledge and belief.

Date

211

STATE CF MICHIGAN )

• ss .

COUNTY OF WASHTENAW )

ANGUS MUNRO, being sworn, says:

1) I am 60 years old. - '

2) I was receiving General Assistance prior to October 1,

1991.

3) Currently, I have no income. The only help I get is
Food Stamps.

4) I am living in my van.

5) To get by, I donate blood for money.

6) When I was on G.A., I was buying a mobile home for $500.
Now I can't pay lot rent or afford to move it anywhere. I can't
finish paying on it, so the money I put into it is probably lost.

7) I tried to apply for the State Disability Assistance
Program in September before my G.A. case closed. The people at
the Department of Social Services told me I wouldn't be eligible
and didn't even give me an application or form to take to my
doctor.

8) I spoke to my food stamps caseworker on October 17,
1991, to find out if G.A. had been reinstated. She said no and
didn't say anything about applying for the S.D.A. program.

9) I am disabled in that I have a plate in my ankle.

I can't bend it or put any pressure on it most of the time.
I also have a lot of lower back pain.

10) I used to be a carpenter but haven't been able to work
since 1976.

I Angus Munro

On this 18th day of October, 1991, before me personally
appeared ANGUS MUNRO, who, being duly sworn, did depose and say
that the facts stated in the foregoing Affidavit are true to the
best of his knowledge, information and belief, and that he signed
the Affidavit as his free act and deed.

Gretchen Tarchinski, Notary Public
Washtenaw County, Michigan
My commission expires December 4, 1994.

212

DSCLARATION OF JOELLA PERDUE

1. My name is Joella Perdue. I am 4 2 years old and I live
in Detroit, Michigan.

2. In April, 1991, I started receiving $56.00 every two
weeks in General Assistance benefits. Those benefits were reduced
to $39.50 every two weeks in May, and again to $33.40 every two
weeks in August, 1991. In October my General Assistance benefits
were terminated.

3. I have not been able to work since 1985. I suffer from
liambar monocytes, which is polio and arthritis of the spine.

4. My gas service has been shut-off. Without heat I am in
a lot of pain. The knots in my knees, and spine make walking
painful.

5. I also suffer from bronchial asthma and without heat it
is painful to talk.

6. Because of angina and high blood pressure, I take
nitroglycerin and Procardia prescriptions.

7. Without General Assistance medical assistance, I am not
able to pay for these prescriptions.

8. I am on a special diet for my diabetes. I don't get
enough food stamps to cover the amount and types of food I need,
and I have no money to supplement the food stamps.

9. Medical transportation has been discontinued for poor
persons like myself. It is difficult for me to endure bus rides to
to my doctor because of the pain in my spine.

10. Although riy home is paid for, I have no way to pay for
the taxes or water. The water has been shut-off for non-payment..
Electrical service to my home has also been discontinued.

11. I am very depressed and find it hard not to give up.

I declare that the statements above are true to the best of my
information, knowledge and belief.

Date

213

DECLARATION OF MARY BAUGH

1. My name is Mary Baugh. I am 56 years old and I live in
Hi^land Park, Michigan.

2. I worked for 21 years at Arnold Nursing Home as a nurses
aide, until March, 1991, when I had a stroke and could no longer
work. The nursing home had an disability insurance policy which
covered me for a while. After the disability insurance money
terminated, I applied for GA, but by that time, I was told the
program had ended.

3. I am a diabetic and I suffer from hypertension. I take
Aldomet for the hypertension and Diabenese for the diabetes.
Without the Aldomet I could have another stroke. Without the
Diabenes, my blood sugar goes way up. When this happens, I can't
move, I get dizzy and blackout.

4. I cannot afford these medications. I have a ten day
supply of Diabenes and Aldomet left. I have been skipping some
days to make my medications last. Without my medication my blood
si^r goes way up. When this happens I can't move. I get dizzy
and blackout.

4. I need to eat three meals a day and one snack. I get
$111.00 in food stamps. This does not cover the amount of food I
need. Without the right amount of food I become dizzy and
nauseous .

5. I have received a seven-day eviction notice and I have no
place to go, if I am evicted. I have no family or friends who can
take me in. I am worried that I will wind up in the streets.

214

6. I had surgery on my right eye rwo weeks ago, but I still
can't see very well. I aa scheduled to have surgery on my left eye
on Tuesday, October 22, 1991. Then, another surgery will be
scheduled for my right eye again, because the first surgery did not
work. I am having problems with my eyes because of the diabetes.

7. I tried to apply for state disability assistance, but the
Department of Social Services would not let me apply because I did
not have an appointment when I went in. I currently have a Social
Security Disability application pending .with the federal
government .

I declare that the statements above are true to the best
of my information, knowledge and belief.

Date MARY BAUGH

B2 \saxon\Baugh . dec

215

D2CLARATI0N O? JOSEPH MONTOYA

1. I am 49 years old and I live in Detroit, Michigan.

2. I suffer from diabetes, osteoarthritis, heart problems
and high blood pressure.

3. I am unable to work, and until October 1, 1991, I was
supported by General Assistance.

4. I have no medical insurance, but fortunately the
Southwest Hospital and Medical Center is still honoring my
Countycare medical card for October, although payments for GA
medical assistance terminated October 1 also. I am worried that
soon (the end of this month) my doctors will stop honoring the card
because they will not be paid. In addition. Southwest Hospital
which is the medical center that I am required to go to under
CountyCare medical program, is closing. The emergency room has
already closed and the hospital is operating with a skeletal staff.
I do not know whether or not I will be able to see my doctor on
Friday- In addition, without any income, I have no money to pay
the 50-cent co-pay for my prescriptions that Countycare requires.
I am currently treated with 24 different medications.

5. I take insulin injections twice a day. Without the
insulin I could enter into a diabetic coma, and die.

6. I also take medication for my high blood pressure, and
coronary problems, including angina. Without the medication I risk
a stroke or heart attack.

7. I am on the verge of complete renal disfunction. This
means that my kidneys could fail at any time and that I will

216

require regular dialysis treatments, without which I will die.

8. Because of the diabetes, VaV feet are hemorrhaging.
Also my thumb has begun to hemorrhage. I cannot afford proper
daily treatment for these conditions. Without appropriate
treatment, gangrene is certain to settle in, which may require
amputation. Because the loss of my toenails, I am unable to wear
shoes.

9. Because of edema and poor circulation, my feet and legs
swell, causing pain and discomfort. My hands, elbows, shoulder,
knees, ankles are swollen due to osteoarthritis.

10. I suffer from bleeding hemorrhoids which I am unable to
treat because I have no money for prescriptions or over-the-counter
medications .

11. I was served with a seven-day eviction notice on October
3, 1991.

12. Because of the 29% reduction in GA benefits in August and
September, My phone bill is two-months in arrears. I need my
phone for medical emergencies. Last year, a friend used it to call
EMS because I was in a diabetic coma. I would have died without
the phone.

13. Because I am diabetic, I am on a special diet and need
to eat properly balanced meals. I receive $111.00 in food stamps
per month which allows me about $3.50 for food per day, which is
not enough.

14. I have no family in the area that I can go to for help.

15. I haven't worked since 1975, when I was employed as a

217

driver for Photoaat corporation. I was forced to give up my job
because I became to sick to work.

16. I have an application for SSI pending and I applied for
State Disability Assistance in August, 1991. I am waiting for
decisions from the state and from the federal government.

17. I am extremely depressed and feel like giving up. I do

not know where I will go when I am evicted. I cannot live in the

streets and I understand the shelters are full.

I declare that the statements above are true to the best of my
information, knowledge and belief.

Date

JOSEPH/^ONTOYA

B2 \saxon\montoya . dec

218

DECLARATION OF KAREN MASSINGILLE

KAREN MASSINGIIXE, under penalty of perjury, says as follows:

1. I aa the Director of the Senior Citizen Case
Coordination and Support Program at Project Scout, located in the
Cass Corridor in Detroit., Michigan.

2. The program is funded by the Detroit Area Agency on
Aging to provide various supportive services to the frail elderly
in the Cass Corridor » These services include connecting seniors
with meals, home help, medical care, transportation, and housing
placement, as needed.

3. There are approximately 3,000 seniors who live in the
Cass Corridor area of Detroit.

4. At any given time, we are serving approximately 200
seniors, ages 60 or older. |

5. Of those seniors who are in the 60-64 age group, j
approximately 50% are supported by GA. j

6. Last week, after notices went out to approximately j
97,000 GA recipients state-wide, the number of new seniors who came |
in requesting assistance doubled. The seven seniors, supported by j
G& who contacted our office for assistance were extremely panicked. |
I am able to describe the situations of some of these seniors as j
follows: j

-1- !

219

7. One senior, aged 63, lost GA October 1 and came into
our office. He was liaping when he caae in. I am attempting to
locate housing for him by October 17 which is the date he must be
out of the housing he has rented. On Thursday, October 3, 1991, I
contacted his DSS worker, Mr. Blackwell, at the Medbury Office in
Detroit. We discussed this senior's eligibility for SDA and how he
could apply. Mr. Blackwell acknowledged that the senior was 63
years old and suffered from arthritis. However, he said the SDA
program was changing daily. He even insisted that it had a new
name, SAD. He informed me that I could come to the office to pick
up a medical form that the senior should take to a doctor. I
immediately went to the office and picked up the form. While at
the DSS office, I also asked the worker about the senior's,
eligibility for ENP assistance so that he could move and store his
belongings while he was waiting for a decision on his eligibility
for disability assistance. I was told by Mr. Blackwell that there
was no ENP program. I have until the 17th to try to locate housing
for this senior, which I will not be able to do if he has no
income, or ability to pay a security deposit and first months
rent.

8. Senior #2 is a 60-year old woman, named "Mary" who
contacted me after she received her GA termination notice on
Tuesday, September 24. She appeared to be extremely distraught.
She was twisting a kleenex in her hand and mumbling repeately
"Three days if I can only stay three days. Three more days, if I
can only stay three days." She could not answer any of my

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220

questions and vas r.ot lucid. I referred her to a local shelter.
On Wednesday, I contacted Adult Protective Services of DSS. I
explained Mary's situation and also informed then that because her
GA vas terminated and she had no income I could not locate housing
for her. They did not mention SDA. Instead, someone from

Protective Services call me back on Thursday afternoon and advised

me to take Mary to the crisis center at Receiving Hospital in j
Detroit- I infomed them that I did not believe she would go
voluntarily. They told me they would call back. On Friday, the
same DSS protective services worker called me, and told me that
another worker had been previously assigned to "Mary's" case. The
worker acknowledge that the assigned worker was on vacation and
suggested that I contact the supervisor on Monday. . ]

9. In the meantime, "Mary" 's landlord came to my office on
Friday looking for her. The landlord presented me with three vials

of medication for "Mary". One bottle was labelled "haldol"; i

another was labelled "procardia", and I do not remember the label j

on the third vial. I was not able to locate Mary at the shelter. |

I made other attempts to locate her at the shelter on Saturday and !

I
I

Monday, but she was not there. On the following Thursday, October j
3, I ran into Mary on the streets. She was extremely disturbed, j

and incommunicable- She would not take her medication from me. |

10. Because I am involved in housing placement, I have seen
landlords who rent to GA recipients closing buildings down. This j

presents additional placement problems for our office since elderly j

persons with other income sources are threatened with displacement j

when the buildings are closed. In one case, tenants are simply j
being locked out by a building owner. These tenants are homeless
instantly without any notice or opportunity to locate temporary
shelter.

I declare that the statements above are true to the best of
my information, knowledge, and belief

R^^R-Hassingille

DATED: October 2, 1991

001

DSCLARATION O? RAYMOND SAL2Y
Raynond Haley, under penalty of perjury, says as follows:

1. I an currently living in the Homeless Union Drop-
In Center in the Cass Corridor in Detroit during the day and at
Sacred Heart Catholic Church in the Interfaith Hopitality
Ministries Rotating Shelter in the evenings. I have been living
like this for six days since I was forced to leave the Lillibridge
Hotel on East Jefferson in Detroit on the morning of October 1,
1991.

2. Prior to October 1, I was receiving GA and ny
rent for my hotel room at the Lillibridge was vendored directly to
the hotel owner. My entire grant of $17 4 per month was vendored to
pay the rent at the hotel.

3. I have a workers conipensation claim pending for
a head injury I received on the job in November, 1990.

4. When I received a notice about the GA disability
supplement in July, I went to DSS to apply for it. When I went in
to apply, I told the worker about my workers' compensation claim
and informed her -chat I wanted to apply for the state disability
assistance supplement so that my check would not be cut again. It
had already been cut from $24 6 to $2 06 in March and my rent was
$200 at the hotel. The DSS worker had me sign a form agreeing to
repay my GA grant if and when the workers compensation claim is
paid. However, she did not give me any papers to take to a doctor

-1-

58-688 0-92-8

222

to apply for rhe supplerenc, or r.eil ne hov to apply for the
supplezient .

5. In August, ny grant was cut to $174 and my I

[ '
landlord agreed to accept the lower vendored amount of $174 so I j

converted the vendor to $174 and vendored my entire grant amount. |

6. On September 23 I received a notice from DSS
that my GA grant was terminated effective October 1.

7. I went to the DSS office at 7608 3*0.116 ond m
Detroit on September 24 and no one would see me because I did not
have an appointment. I waited all day until they closed and was |
told to come back -he next day. I

8. I went back to the same DSS office the following '
day, September 25, and my worker gave me a DSS-4 9 form and told me i
to have it filled cut by a doctor and to bring it back to her. j

9. I have not been able to obtain an appointment
with my doctor to complete the form. Because I do not have j
Medicaid, I am on the DSS County-Care Health Source medical program j
for GA recipients at the Mercy Family Clinic in Detroit. I cannot i
get an appointment there until October 17. |
11- In the meantime, because I had to leave the j
hotel to avoid being locked out, I am staying at the Homeless Union]
Drop-In Center during the day and the Rotating Shelter at Sacred j
Heart Catholic Church at night- It is noisy and I am staying with,

70 strangers, some with obvious mental problems. There are no beds,

and we all sleep in two rooms on the linolebum floor on mats at the j
Sacred Heart Activities Center. As of today, Sunday, October 6, i

223

tsere are no churches participating in the rotating shelter for the
next tvo weeks so ve will be staying in one roos at the Homeless
Ou.on Drop-in Center. I aa very depressed about living like this
and I see no end in sight. I keep calling my Workers' Compensation
lawyer to find out how long I will have to wait, but I have not
been able to get a response.

I declare that the statements above are true to the best
of my information, knowledge and belief.

Dated

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224

MARY FAIRCLOTH, ur.der penally of perjury, says as follows: '

1. My naae is Mary Faircloth. I aa married to Vernon ^
Faircloth. Vernon is 54 and I am 49.

2. We live in Atlanta, Michigan in Montmorency County. i

3. Both of us vere receiving General Assistance until October
1, 1991. We have been cut off GA. We have each applied for SSI
within the last yeax, and both been denied. |

4. I am an insulin-dependent diabetic. I take 2 6 xinits of j
Humulin-N in the morning and 13 units of Kumulin-R in the evening.

I also have a thyroid problem and severe osteoporrhosis . I have
fractured three bones. I take synthroid for my thyroid problem and
hormone therapy. I have been warned by my doctors that an
interruption of hcr-one therapy can put me at risk for cancer.

5. Vernon has had three heart attacks and has rheumatoid

arthritis of the spine. He has had surgery on his knee and needs |
it on his other knee. He has had surgery for carpel tunnel {

syndrome and has a muscular problem that affects the use of this j

thumb and forefinger (De Quervain's disease). He takes tenormin j

(for his heart), ansaid (for arthritis), voltaren (for arthritis), |

lopid (for high cholesterol), cytotec and zantec (for stomach j

problems caused by the arthritis medications) . !

6. On Friday, October 4, 1991 I spoke to my worker at the
Montmorency Department of Social Services to seek GA disability for j
my husband and myself. My worker mailed medical forms to our
doctors, and told me we would have to pay for the medical
examination at our doctor's office since there is no more GA i

225

Medical. He did net. infora sie that there is a vay to get eaergency
medications. He did not indicate that DSS could authorize payaent

! to obtain the aedical reports that we need to demonstrate

I disability.

1 7. I vill run out of ay premarin (hormone therapy) and

thyroid medication on Thursday.

8. My worker has told me that we should get a job and
has also told me ve should move in with . my daughter and her
husband. However, her husband is disabled, they have a small home
and three sons and are barely surviving.

I I declare that the statements above are true to the best

of my information, knowledge, and belief -

Date

226

pgpWATToy OF ROBTW 8.

1. I am 35 years old and live alone in St. Clair County,
Michigan.

2. My only source of income is Supplemental Security Income,
in the amount of $426.00 per month, and I receive $100.00 in food
stamps each month.

3. I receive SSI because I am severely disabled, as I suffer
from insulin dependent diabetes, ketoacidosis diabetes, peripheral
neuropathy and severe chronic depression and I am presently
experiencing suicidal thoughts. I understand that my illnesses
could result in my death within five (5) years. I have been
hospitalized numerous times in psychiatric facilities for suicide
attempts and in hospitals for uncontrolled ketoacidosis, which is
life threatening.

4. I take the following prescription medications daily:

Stuartnatal (vitamins)
Reglan

Pamelor (anti-depressant)

Lasix

Fioricet

Levsin

Torecan

Tegretol

Librium

Robaxin

Vancenase (nasal spray)
Zantac

Humolin/Novolin 70/30 Insulin

Humolin/Novolin Regular Insulin

Hydrocortisone cream

Cough syrup

Proventil (inhaler)

Actifed (not covered by Medicaid)

227

5. My 13 year old son lives with my parents in St. Clair
County because I am unable to provide full-time care for him, and
because he is anxious and too apprehensive to live with me. He
fears that, because of my severe illnesses, he will come home and
find me dead. His father was killed in an automobile accident
three (3) years ago.

6. My parents, although able to care for my son, do not have
adequate living space for both of us. However, they live nearby so
I am able to visit with my son frequently.

7. I was hospitalized for two (2) weeks this past October in
Port Huron Hospital for severe depression and suicidal thoughts.

8. At the present time, I rent a small home for $200.00 per
month. I also pay for the utilities, which cost approximately as
follows:

Electric; $50.00 per month in the winter, and $125.00
per month in the summer months. ( I have to have air-
conditioning because of my diabetes.)

Gas; $150.00 per month in the winter, and $30.00 per
month in summer.

Water: I also pay for water service, which averages
approximately $33.00 per month.

9. I have an outstanding water bill of $217.81. I received
a water shut-off notice from the City Water Department November 20,
1991, demanding payment of $115.00 or my water service will be
disconnected. A privatre charity paid a portion of the bill in

228

December to prevent the shut-off, however, it is due to be shut-
off.

10. My gas bill is $249.97, part of which is past due, and I
received a disconnect notice on January 10, 1992.

11. In the past, the Michigan Department of Social Services
has assisted me with payment of utilities through the Emergency
Needs Program, for which I was qualified.

12. Since several changes were made in that progreun, I am no
longer eligible for emergency assistance.

13. I received some money for gas and electricity, however,
I am not eligible for anything more this year because of the energy
assistance maximum payments.

14. I contacted my caseworker at St. Clair County DSS for
Emergency Assistance benefits to pay the delinquent water bill. In
the past, I have received emergency needs benefits to pay overdue
water and other utility bills, as I had met all the eligibility
requirements effective prior to December 1, 1991.

15. I was denied emergency assistance to help pay the
delintjuent water bill based on a new rule called the "Affordable
Housing Rule" and because of the new maximum payment.

16. As I understand it, the Department of Social Services
thinks my rent is too high for me to be eligible for emergency
assistance under the programs for delinquent water bills.

17. I explained to DSS that $200.00 per month is the lowest
rental amount that can be found in this area.

18. On or about January 6, 1992, my request for emergency

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229

assistance to pay the water bill was denied despite the fact that
it was due to be shut-off in the near future. I received the
notice on about January 22, 1992.

19. I have no other means to pay this bill.

20. It is medically necessary for me to have uninterrupted
water service. I am very anxious and fearful about my future. If
the water is shut off, I will be forced to leave my home without
any place to go.

I declare that the above statments are true to the best of my
information, knowledge and belief.

DATE

ROBIN S.

230

Mr. DiNGELL. Thank you, Ms. McParland. |

Dr. Adamany, we are delighted to recognize you for your state- j

ment. |

We want to express our thanks to you for your hospitality and '

your kindness today. We hope we can make this hearing a success. |

Dr. Adamany is an outstanding educator, president of this universi- |

ty, and a great leader in many activities, including community ac- |

tivities, here in the State of Michigan. i

We thank you and we welcome your statement. j

STATEMENT OF DAVID ADAMANY |

Mr. Adamany. Thank you, Mr. Chairman. j

I want to welcome the committee to our campus and say how |

much I appreciate the opportunity to testify. I have a longish state- I

ment which I will ask to be incorporated in the record, and then i

my oral presentation will be quite brief indeed, because I only have j

two real points to make. i

Mr. DiNGELL. Without objection, we will include your full state-
ment in the record.

Mr. Adamany. Thank you. I

I am here today as president of Wayne State University and as a '
member of the board of trustees of the Detroit Medical Center. I

express the regrets of the president of the medical center that he j

cannot be here to join me. I want to mention that Dean Rockwell I

Soldel, who is the dean of our medical school, is sitting behind me ]

and may help in response to some questions. i

Wayne State University is one of the Nation's leading urban re- |
search universities, and the Wayne State Medical School, Mr.

Chairman, has the largest medical student enrollment on a single '

campus in the United States. 1

Our partners in the Detroit Medical Center, which is an academ-
ic medical center, have approximately 2,200 beds. The medical j
center is a complex of five mainly tertiary care hospitals located on i
a single campus in the heart of Detroit. There will soon be a major i
sixth hospital there as the new veterans hospital is constructed
there with us. We have one hospital in the northwest neighbor-
hoods of the city of Detroit, one community hospital in the north-
west suburbs, and various outpatient and clinic facilities. {

The Detroit Medical Center is affiliated with Wayne State Uni- I
versity but not owned by the university. Faculty physicians serve
on the staff of the hospitals, and medical students as well as 700

residents are trained in the DMC. I mention this background be- |

cause they help to highlight a significant mode of health care '
which itself is an illustration of the failure of our present health

care system. |

The failure of the present health care system, including Medic- i
aid, can be illustrated by the extraordinary levels of uncompensat-
ed and undercompensated care provided by the Detroit Medical j
Center and Wayne State University in partnership. |

I think one of the two key points now for me to bring to your |

attention, which will help in assessing the quality of our health |

care system in this country, is to point out that last year the De- i
troit Medical Center hospitals provided $90 million of uncompen-

I 231

1 sated care to the people of this city and metropolitan area. We
I almost — I say almost, because there are some rare exceptions — ^we
j almost do not close our doors to the needy and the indigent in pro-
I viding medical care.

j In addition to the $90 million of uncompensated care provided by
j our medical center hospitals, another $15 million of totally uncom-
j pensated physician services were provided by the Wayne State
I medical faculty physicians and residents last year, and another $15
I million provided in physician and resident services in undercom-
pensated care. So that approximately $120 million of uncompensat-
ed and undercompensated service was provided to the people of
this city last year by the Detroit Medical Center and Wayne State
University's medical school.

Without the urban medical schools in this country like ours, and
their associated hospitals, health care for the poor and disadvan-
taged in our cities, large cities, would simply collapse. What this
demonstrates clearly is that in reality, there is neither a Federal
nor State health care safety net for the most desperately needy of
' our citizens. If there were such a safety net, we would not be pro-
viding $90 million of hospital service and $30 million of physician
services for people who have nowhere totals turn.

Now, a part of my testimony then details what you already
heard, Mr. Chairman, which are many of the problems of the Med-
icaid system. I will not dwell on those. I do want to observe one
I special issue, however.

The Detroit Medical Center hospitals in a succession of years,
until last year, lost $9 million, $25 million, $38 million, and $45
million a year, and brought that great health care system into sub-
stantial jeopardy.

We depleted our cash resource and we are now underfunding
equipment and facilities renewal in the Detroit Medical Center be-
cause in serving the poor and the needy in this city, we drove our-
selves dangerously into debt.

Largely because of the voluntary contribution program in which
we have been able to participate for the last year, we had a nearly
break-even year. We hope to do that again this year because of the
voluntary contribution system, but we do not think our long-term
prospects for being financially viable are strong absent that pro-
gram.

And this underscores my first principal point, that without spe-
cial emergency measures by the Federal Government, despite our
! very best efforts to serve our community, we are not going to be
j able to go forward into the future.

' Now, my second point is to address you in my role as a universi-
I ty president, and to simply say to you that as we address the prob-
j lem of health care for our people generally, and especially for the
I poor and disadvantaged, that we do take advantage of the great
academic health centers located in our urban communities. As I
pointed out previously, these health centers associated with our
' urban universities are already making an enormous effort to pro-
vide medical services to the indigent.

And now for a point no one wishes to hear. This is not care at
the cheapest rate and the lowest quality in the academic medical
: centers and the Detroit Medical Center; rather, the care provided

232

by the academic health centers in our cities is high-quality care,
the kind of care that is provided by specialists at the forefront of
research and clinical practice in their respective fields. It is care
provided by residents being trained by leading academic physicians
in the Nation. It is a quality of care that the well-off come into this
city to seek.

I want to emphasize the point about the clinics operated by the
Detroit Medical Center and Wajnie State University physicians.
There are no special clinics for the well-off or the fully insured that
separate them from the poor. There are no facilities that separate
white patients in the suburbs from Medicaid or non-paying patients
who are disproportionately blacks or Hispanics from the city. As a
patient with full coverage under Blue Cross/Blue Shield, I go to the
same clinics and wait in the same waiting rooms and see the same
physicians that serves our poorest citizens.

There are other advantages to using our health centers as part of
the solution to the Medicare problem. These centers train M.D. stu-
dents and residents, and it is vitally important for those entering
the medical profession to have some direct experience in working
with the disadvantaged.

It is important that they have direct experience with the special
illnesses and pathologies of the poor. And it is important that the
people who will be the next generation of health care providers in
this society understand through practice the important challenges
imposed by health care in urban settings.

Mr. Chairman, I would make the same comments about research:
It also adds to health care costs. If we are going to conquer those
illnesses and medical injuries that are especially present in urban
centers and among the poor, then academic physicians who conduct
the vast majority of this Nation's medical research, must know
these threats to health through their practice, and must help ad-
dress them through research among urban populations. j

This kind of medical care is not, as I have said before, the kind of |
health care service provided by private or public insurance pro- j
grams whose sole measure of success is low cost and high volume. |
Providing first-class medical care to our fellow citizens who are
poor or disadvantaged, training physicians to work with these pa- '
tients and instilling a commitment among physicians to the poor
and the disadvantaged and conducting research that will help us |
address the special pathologies of the urban poor is not the lowest- I
dollar medical care that distant planners and policy analysts might |
concede. At the same time, it need not be the same high-cost medi- |
cal care that so many of our insurance plans now support. j

I would suggest that we move forward in steps. I would suggest
that the Federal Government and the States should directly fund !
managed care programs on the model of HMO's that would serve |
the urban poor and that would be built around, and if possible, i
managed by urban academic health centers, public and private hos-
pitals, public and private medical schools. |

I believe we would find means to provide quality care at reeisona-
ble rates. We would soon discover that academic hospitals and phy-
sicians could engage in preventive programs, for which there is ]
now, of course, no budgetary support, in preventive programs that
would lower overall health care costs.

233

After all, if a poor person is continuously affiliated with the
same health care institution and the same group of physicians,
they will not be driven to seek care only when illness becomes ex-
treme, and to seek it mainly through emergency rooms where costs
are highest.

Moreover, the present network of urban hospitals, especially the
urban academic hospitals, already have the capacity to provide a
high volume of care because they have the facilities and the equip-
ment in place.

Well, I have some additional comments, Mr. Chairman, in my
written statement, but I want to point out that many of the solu-
tions to the problem now being proposed would mistakenly turn
their backs on the great urban health centers in our distressed
cities that are already deeply involved in providing care for the dis-
advantaged.

I believe instead we should build on that network of existing
health facilities, those dedicated residents and faculty members al-
ready providing care to the poor at little or no reimbursement.
This cannot be the cheapest care we can achieve, but a mature and
civilized society does not determine its health care only on the
basis of cost.

I appreciate the opportunity to appear today, and I hope we have
shed some light on a little different aspect of care for those who
have no other place to turn, and perhaps offered at least a window
of potential for serving our disadvantaged populations through ex-
isting networks of physicians and hospitals who are already partici-
pating in this responsibility.

[Testimony resumes on p. 251.]

[The prepared statement of Mr. Adamany follows:]

234

Testimony of David Adamany
President, Wayne State University

Subcommittee on Oversight and Investigations
of the

Committee on Energy and Commerce
United States House of Representatives

February 28, 1992

Mr. Chair, other members of the Committee, and members of Michigan
delegation, I am David Adamany, the President of Wayne State University
and a member of the Board of Trustees of the Detroit Medical Center.

Wayne State University is one of the nation's leading urban research
universities. The Wayne State Medical School has the largest medical student
enrollment on a single-campus in the United States. The Detroit Medical
Center (DMC) is an academic medical center with approximately 2,200 beds.
It consists of a complex of five tertiary care hospitals located on a single
campus in the heart of Detroit, one hospital in northwest Detroit, one
community hospital in the northwest suburbs and various outpatient and clinic
facilities. The Detroit Medical Center is affiliated with Wayne State

235

Page 2 Testimony of David Adamany

University, but is not owned by the University. Faculty physicians serve on
the staff in DMC hospitals, and medical students as well as 700 residents are
trained in the DMC.

The failure of our present health care system, including Medicaid, can be
illustrated by the extraordinary levels of uncompensated and
undercompensated care provided by the Detroit Medical Center/Wayne State
University partnership. Last year more than $90 million of totally
uncompensated care was provided by the Detroit Medical Center. Another
$15 million of totally uncompensated physician services was provided by
Wayne State faculty physicians and residents, with still another $15 million
in undercompensated health care, where reimbursement fell short of health
delivery costs, also provided by these physicians and residents. Without our
urban medical schools and associated hospitals, health care for the poor and
disadvantaged in our large cities would simply collapse. That demonstrates
clearly that there is neither a Federal or state health care safety net for the
most desperately needy among our fellow citizens.

236

Testimony of David Adamany Page 3

The Medicaid program is by far the nation's most important program for
providing financial access to health care for our nation's low income
population. In Michigan, approximately 1,000,000 citizens depend on
Medicaid coverage to secure needed health services ~ services which they
could not possibly afford without this vital program. However, despite its
successes, the current design of the Medicaid program has a number of
inadequacies.

From its inception. Medicaid eligibility criteria has relied on a concept of the
"deserving poor." Presently, in order to qualify for Medicaid coverage, a
person must meet income standards which have eroded to the point where
millions of people below the Federal government's recognized poverty level
make too much money to qualify. In Michigan, which is one of the more

generous states, only about 70 percent of people living below the poverty I

level qualify for Medicaid. In addition, recipients can qualify only if they
have a low level of assets. This often results in people spending virtually all |
of their life savings prior to receiving Medicaid. This is especially difficult

Page 4

237

Testimony of David Adamany

for senior citizens who often have limited assets to live out the remainder of
their lives. Finally, categorical requirements (such as families with dependent
children, over age 65, blind, or permanently disabled) result in huge
differences in coverage, even for many who meet the financial eligibility
standards.

Simply stated. Medicaid fails to cover a significant portion of the population
living in poverty, either because of the restrictive financial eligibility
standards or because of failure to fit into one of the eligibility categories.
These people constitute a large portion of the 37 million Americans - over
350,000 of whom live in Wayne County - who have no health care.

In most states. Medicaid has become one of the largest and fastest growing
items in the state budget. As a result, many states have asked health care
providers to "subsidize" the program by establishing payment rates which
fail to cover the costs of providing service. This situation has become so
severe that hospitals and nursing homes in over 30 states (including

238

Testimony of David Adamany Page 5

Michigan) have resorted to suing their respective state governments for failing
to live up to the legal requirement of adequate payment. As a result of the
legal action in Michigan, the situation has improved considerably. However,
with continuing pressure on state budgets across the country, it remains to
be seen whether these same difficulties will be repeated in the future.

In many respects, the problem of underpayment by Medicaid is even more
severe with respect to physician services. Last year, at the direction of
Congress, the Physician Payment Review Commission of the Department of
Health and Human Services and the National Governors' Association
conducted a study of the adequacy of Medicaid physician fees. The results
of the study indicated that Medicaid physician payments in many states were
significantly less than either the then-prevailing charges recognized under the
Medicare program, or the fees to be paid under Medicare's new
Resource-Based Relative Value Scale (RBRVS) system.

Page 6

239

Testimony of David Adamany

Medicaid physician payment rates, in Michigan, were, on average, 62 percent
of Medicare rates. Michigan has recently improved physician payment rates
by 15 percent. This was funded by the state's "voluntary contribution"
program, but the rates will still be only 71 percent of Medicare levels. These
rates, coupled with Michigan's medical liability climate, result in many
physicians being unwilling to serve Medicaid recipients. The consequence
is that Medicaid patients have limited access to physician services (including
prenatal care and routine pediatric care) and often turn to hospital emergency
rooms for non-emergency medical care. This is not only costly to the
medical care system, but results in a lack of preventive care for a population
which starts out at greater health care risk.

Federal mandates have placed an additional burden on the Medicaid system.
Unfortunately, many states, including Michigan, have not been prepared to
assume the additional budgetary burdens of these mandates. State officials
indicate that these mandates have increased state Medicaid expenditures by
hundreds of millions of dollars in recent years.

240

Testimony of David Adamany

Page 7

The problem with federal mandates is exacerbated in Michigan where the
Federal Financial Participation (FFP) rate is relatively low (approximately
55 percent). Thus, while in some states the mandates require the state to
come up with only 25 percent of the cost, our state must supply 45 percent.
Furthermore, the FFP formula seems not to measure the health care needs of
low income populations very well, and the time lag in adjustments to
changing economic conditions tends to create a "counter-cyclical" effect—by
the time the effects of a recession are reflected in the FFP formula, the
recession is over.

On a more positive note, Michigan has made use of many of the optional
eligibility categories, particularly those for pregnant women and children.
In fact, with some additional supplementation with state funds, Michigan now
offers coverage for pregnant women and young children up to 200 percent of
the poverty level.

241

Page 8 Testimony of David Adamany

Michigan is one of those states that has utilized "voluntary contributions" to
maximize the state's federal participation in the Medicaid program. The
increasing costs of Medicaid programs due to health care inflation and federal
mandates coupled with declining state revenues and the sincere desire by state
governments to provide needed services to low-income people has resulted
in many states developing programs to maximize federal participation through
"voluntary contribution" and provider-specific tax programs. Last year, in
an effort to put a halt to these types of programs, the Health Care Financing
Administration promulgated rules which would have prohibited most, if not
all, of these flexible funding mechanisms. Thankfully, Congress (along with
the National Governors' Association) stepped in to negotiate a more
reasonable approach.

However, with the continuation of a weak economy, combined with the
legitimate demands of other state priorities, we envision the real possibility
of another round of state crises in Medicaid funding when the limitations of
the "Medicaid Voluntary Contribution and Provider-Specific Tax

242

Testimony of David Adamany Page 9

Amendments of 1991" come into full force. These provisions will not only
place state funding in jeopardy through the limits on flexible funding sources,
but the act may also have a substantial impact on hospitals, like ours in the
Detroit Medical Center, which provide enormous amounts of care to the
indigent. These hospitals have been helped significantly by the availability
of "disproportionate share hospital" payments. Without these payments, the
Detroit Medical Center would not be able to continue to support the nearly
$90 million of uncompensated care burden which it currently carries. The
statute enacted by Congress will, in Michigan, cap those payments at their
current levels. With inflation and a continuing growth of the uninsured in
our community, today's disproportionate share hospital payments will not be
sufficient to meet tomorrow's challenge.

Medicaid now largely covers three distinctly different populations: mothers
and children, the elderly in need of long-term care, and those with mental
disabilities. In Michigan, Medicaid payments for psychiatric care (through
both public and private sources of care) have been one of the fastest rising

243

Page 10 Testimony of David Adamany

components of expenditures. In many ways, these funds have replaced the
state's historical responsibilities for funding. In many other states, long-term
care for the elderly consumes 50 and even 60 percent of Medicaid
expenditures. In Michigan, this percentage in approximately 25 percent. To
a significant extent, this has enabled Michigan to continue to provide a
relatively broad range of benefits to other Medicaid recipients, although this
past year saw some curtailment in that ability. Michigan is able to provide
these services, in part, by establishing inadequate reimbursement rates for
long-term care providers (which, as I indicated earlier, ultimately forced legal
action), and, in part, by severely restricting the supply of nursing care
facilities through its Certificate of Need program. As the senior population
continues to grow (particularly at the high end of the age spectrum) and
anti-regulatory pressures grow, the demand for Medicaid dollars for
long-term care in Michigan will clearly heighten, placing additional stresses
on an already fragile system.

244

Testimony of David Adamany Page 11

Medicaid is particularly affected by what some have called the
"medicalization of social problems." We see increasing amounts of dollars
under Medicaid going to treat the results of other societal failures -
inadequate education, poor nutrition, violence in our neighborhoods and on
our roadways, substance abuse, lack of affordable housing, and sexual
practices which result in exposure to disease and in unprepared parenthood.
The health care system is all too often called upon to "pick up the pieces" in
an increasingly distressed urban community. Not surprisingly, the cost of
health care continues to rise at alarming rates.

My remarks thus far have focused on the problems and obstacles facing our
health care delivery system and, in particular, the special problems we face
in our urban centers. I would now like to share with you some of the issues
I hope you will take into consideration as you look to ways to improve the
nation's health care system.

Page 12

245

Testimony of David Adamany

! From my perspective as a university president, I would strongly urge that as
j we address health care for the poor and disadvantaged, we take advantage of

!the great academic health centers located in our urban communities. As I
have previously pointed out, these health centers associated with our urban
I universities are already making enormous efforts to provide medical services
j to the indigent. This is not care at the cheapest rate and lowest quality.
Rather, the care provided by the academic health centers in our cities is high-
quality care, the kind of care that is provided by specialists at the forefront
I of research and clinical practice in their respective fields. It is care provided
by residents being trained by the leading academic physicians in the nation.
It is a quality of care that the well-off seek out.

I want to emphasize this point, Mr. Chairman. In the Detroit Medical Center
and the clinics operated by Wayne State University physicians. There are no
special clinics for the well-off or the fully insured that separate them from the
poor, there are no facilities that segregate white patients from the suburbs
from Medicaid or nonpaying patients, who are disproportionately poor blacks

246

Testimory of David Adamany

Page 13

or Hispanics from the City. As a patient with full coverage under Blue
Cross/Blue Shield, I go to the same clinics and sit in the same waiting rooms
and am served by the same physicians that see our poorest and most
vulnerable citizens.

There are other advantages to using our great urban academic health centers
as part of the solution. They train M.D. students and residents. And it is
vitally important that those who are entering the medical profession have
direct experience in working with the disadvantaged, that they have direct
experience with the special illnesses and pathologies of the poor, and that
they understand through practice the important challenges posed by health
care in urban settings.

I would make the same comments about research, Mr. Chairman. If we are
going to conquer those illnesses and those medical injuries that are especially
present in urban centers and among the poor, then academic physicians—who
conduct the vast majority of this nation's medical research-must know these

247

Page 14 Testimony of David Adamany

threats to health through their practice and must help address them through
research among urban populations.

This kind of medical care is not, Mr. Chairman, the kind of health service
provided by private or public insurance programs whose sole measure of
success is low cost and high volume. Providing first class medical care to
our fellow citizens who are poor or disadvantaged, training physicians to
work with these patients and instilling a commitment to them among the next
generation of doctors, and conducting research that will help us address the
special pathologies of the urban poor is not the lowest dollar medical care
that distant planners and policy analysts might conceive.

At the same time, it need not be the same high cost medical care that so
many of our insurance plans now support. I would suggest that we move
forward in steps. The federal government and the states should directly fund
managed care programs, on the model of HMOs, that would serve the urban
poor and that would be built around (and where possible, managed by) our

248

Testimony of David Adamany Page 15

urban academic health centers-public and private hospitals, public and
private medical schools. I believe we would find means to provide quality
care at reasonable rates. We would also soon discover that academic
hospitals and physicians could engage in preventive programs that would
lower overall health care costs. After all, if a poor person is continuously
affiliated with the same health care institution and the same group of
physicians, they will not be driven to seek care only when illness becomes
extreme and to seek it mainly through emergency rooms, where costs are
highest. Moreover, our large urban hospitals and clinics have the capacity
to provide high volumes of care because they already possess the facilities
and equipment. Such volumes of patients are not only cost effective, but they
assure that physicians in training will develop both skill and commitment in
providing care to the urban poor; and they will also provide settings in which
research to address the special medical conditions of the urban poor can be
effectively conducted.

j 249

Page 16 Testimony of David Adamany

i|
i

j It would be a mistake, in my view, to turn our backs on the great academic
health centers in our distressed cities. They are already deeply involved in
providing care for the disadvantaged, and we should build on what they do
and what they know. This will not be the cheapest care that can be
^ conceived, but I am not sure a mature and decent society bases its public
! policies on the single criterion of cost. At the same time, it will be care at
reasonable costs because of managed care arrangements, high volume, the use
of existing facilities, and preventive medical programs.

I I hope that as we move forward in reviewing how our health care system will
serve all of the poor, our federal and state governments will build alliances
with our urban academic health centers by entering into experiments for
managed care programs that they could administer.

In conclusion, I would like to reiterate that we are indeed in need of reforms
in health care and Medicaid. However, there is much that can be salvaged
from the current system. We can build upon the available infrastructure.

250

Testimony of David Adamany Page 17

Perhaps the federal government can provide incentives to challenge states and
academic medical centers to develop special managed care arrangements that
provide high quality care while bringing health care costs under control.

Mr. Chairman, thank you for allowing me the opportunity to submit
testimony regarding the issue of Medicaid and public health policy. We at
Wayne State University and the Detroit Medical Center are committed to
doing what we can to assist in accomplishing this important task.

251

Mr. DiNGELL. Thank you, Doctor.

I recognize my good friend and colleague, Mr. Upton.

Mr. Upton. Thank you, Mr. Chairman.

I would like to take a moment to introduce two very good friends
of mine, Jim Foster, president of the Three Rivers Area Hospital,
as well as Bob McDonough.

Jim Foster has played a very active part in trying to improve
health care, not only in the area that I represent, Three Rivers, in
St. Joe County, but really throughout our State.

I would note for those of you who are here today that Three
Rivers is a community very much along the same lines as the
Chairman's — a rural area, border county with Indiana and Ohio,
and they have many concerns that are well addressed in this par-
ticular hearing, which focuses on rural health care.

Bob McDonough, who is former mayor of Three Rivers, current
board member of the hospital, Upjohn employee, long committed to
public service and good government, and also improving the qual-
ity of health care, I am sure that the remarks he may make would
be important, too. I welcome you both to the committee today.

STATEMENT OF JAMES R. FOSTER

Mr. Foster. Thank you for asking us to share our experiences
with the committee. I am Jim Foster. I am the president of Three
Rivers Area Hospital. I moved to Michigan during the 1980's and I
am very proud and pleased to be a part of your great State. It is a
great experience for me.

We have provided written testimony, and I would ask, if I could,
that that be entered into the record.

Mr. DiNGELL. Without objection.

Mr. Foster. Three Rivers Area Hospital is a small hospital in
southwestern rural Michigan. Our economy is agricultural and
small industry. We are facing a number of the same challenges
that a large number of other small rural hospitals are facing in
Michigan.

I think first in our list of priorities, financial viability is one of
our major challenges. We have had some recent assistance in meet-
ing that challenge in the geographic classification for Medicare,
which was beneficial to us, and also in application of the board
amendment to Medicare reimbursement in our State.

Second, a very important challenge for us at this time is physi-
cian availability, not only in Three Rivers but also in, I would say,
all rural communities in Michigan. We recently had a hospital
survey of smaller hospitals, 1991, done near the end of last year.
Ninety-five percent of our hospitals in that category represent a
shortage of physicians, a difficulty of having physician services
within their communities.

The third thing I think is very important, and that is that we be
able to move forward as our smaller hospitals in converting to pro-
vide the care that is needed so that we will be current. That con-
version requires that we have a payment system, a reimbursement
system, that will allow us the timeframe to plan, to execute that
plan, and to exercise some run on those new investments.

252

A good example is an Inpatient Rehabilitation Program, which
Three Rivers area hospital opened this past year. We proceeded
through the initial year with very limited reimbursement, and now
are at the point of being a distinct part and unit under the Medi-
care program, a factor that will be of value to us in providing acute
preventive care within Three Rivers area.

Many of the communities in Michigan are presently depending
upon such diversification in order to maintain health care in their
communities. One case in point has been the substance abuse reha-
bilitation which in the past has been reimbursed to hospitals, being
an important part of the revenue stream to that hospital. I don't
know that we lost any hospitals as that reimbursement was termi-
nated the year before last, I believe, but it was a significant factor
for many of our hospitals.

Presently, long-term care is provided in some of these hospitals.
And I am emphasizing hospitals because I believe them to be the
center of the present health care delivery system. Without a hospi-
tal, physicians are very reticent to become associated with the com-
munity. Without a hospital, the ancillary services, the emergency
services are less likely to be available in that area.

I want to just ask that you consider the impact of reducing the
payment of costs in these associated or diversified services as you |
move toward solutions which we all seek and value.

Finally, I think that we as a hospital have as a significant part of
our mission the promotion of wellness and the development of
health in our area, and I would love to show you some detail on !
that, but I want to keep my comments very brief. But simply to say
that we do a large amount of community education, of prevention [
and screening, and operating fitness programs, which are essential- j
ly break-even types of services, but which we think promote '
healthy growth and wellness concepts to our citizenry. \

I would like to ask really four things, if I may make suggestions, j
and I understood that may be part of the agenda. First of all, I [
think to support those physicians who are presently established in |
rural areas as being the point of first contact for all citizens. I )
think that is very much an important point for the Medicaid popu- j
lation. [

Furthermore, to encourage or to develop ways that new physi- \
cians will consider our areas. Just recently I spoke for the residents
in Dr. Adamany's program here. He will be finishing soon. We [
were very anxious to have him join us to provide care at Three i
Rivers. But we don't have group practice in an area where there y
are one or two specialists in a given area. He is going to go as a ■
physician into a group practice so he can have the security and the f
opportunities of that practice. l

But we don't have residents presently working in small and f
rural hospitals. And I think that is a point that would benefit us i
greatly, if they became aware of the advantages of working in our
type of setting. ^

I would ask again that we have the support of the government
programs in establishing new services. Outpatient services are }
booming in all of our small rural hospitals. The payment rates in p
the Medicaid program is less than 40 cents per dollar of cost. {

Mr. DiNGELL. Less than 40? i

253

Mr. Foster. That is the information I have from a number of
chief financial officers in Michigan's smaller hospitals.

Mr. DiNGELL. The reason I raise that is, it is computed to be 55
cents on the dollar.

Mr. Foster. Chairman Dingell, I would not argue the point with
you.

Mr. CoNYERS. Give him a nickel or a dime.

Mr. Foster. I asked four chief financial officers last week, and
they are telling me it is 37 to 39 cents on the dollar of cost in the
outpatient programs for Medicaid reimbursement.

Mr. Dingell. That is outpatient?

Mr. Foster. For outpatient services.

Mr. Dingell. How about inpatient?

Mr. Foster. Inpatient, I believe, is in the neighborhood of 70 per-
cent of our cost in inpatient care.

Mr. Dingell. So if you average the two, you come out with some-
thing around the number I gave?

Mr. Foster. That is correct.

Mr. Dingell. Forgive me.

Mr. Foster. The point is that outpatient services is the direction
we need to go. Our hospital was built in 1985, 1986, and we moved
in in 1987, prior to my coming. It is a real advantage to come into
a brand-new facility, and I credit the board with their courage in
going forward with that.

My point is we need to modify the facility in order to handle a
very heavy outpatient volume. We want to go to an outpatient
volume. People would prefer to be at home and come for the specif-
ic diagnostics and therapeutics that they need.

We are not encouraged to make that kind of financial reinvest-
ment for the kind of return we are getting in this field of the pro-
gram. I encourage the suggestion that cost shifting is how we are
doing that. We are getting pressure on that side as well.

I am longer winded than I intended to be, and I just want to ask
for two more things. One is for strong reform in the area of medi-
cal liability. It is a significant cost, and I think my friends from
Michigan Hospital Association will go into that some more, but I
think it is as much an intrusion for physicians especially and for
other health professionals to handle, because there is such — it is
such a specter. It is such a strong concern on their part.

Finally then I think — and this is something I asked for for
myself in the intensity of day-to-day work in dealing with the oper-
ations of the hospital, with the possibility of expanding or diversify-
ing. It is difficult to stay informed and in touch with new develop-
ments and new forums that are available to us.

And I would give a case in point that rural health clinics were
devised and authorized, it is my understanding, in 1977. We
learned of them about 2 years ago, have considered that as a possi-
bility for St. Joseph County, but only recently have we had some-
one in the State government who is knowledgeable about that pro-
gram and could assist us.

58-688 0-92-9

254

That would be the coordinator now of rural health clinics and
federally-qualified health centers under the Department of Public
Health.

Those are the things I would request, and I will stop at that
point, and thank you for allowing me to come.
[Testimony resumes on p. 267.]

[The prepared statement and attachment of Mr. Foster follow:]

255

STATEMENT OF THREE RIVERS AREA HOSPITAL

Presented by
James R. Foster

President

I am James R. Foster, President of Three Rivers Area Hospital
(TRAH) , a 60 bed community hospital located approximately 20
miles south of Kalamazoo. TRAH is operated as a hospital
authority under Michigan Public act 47 of the Public Acts of
1945. Included within the Hospital Authority are the City of
Three Rivers and four adjacent townships. TRAH has an operating
budget of approximately $17 million. Additional information
concerning TRAH is presented in Attachment 2.

We appreciate the opportunity to appear before the Subcommittee
today to share our insights on the challenges facing rural
hospitals, and to offer our suggestions as to possible remedial
action which Congress may wish to consider. I am joined by Bruno
J. Masnari, Chairman of the TRAH Authority Board, Robert T.
McDonough, Secretary /Treasurer of the Authority Board, and
Lav/rence C. Herman, Past Authority Board Chairman and Executive
Director of Community Mental Health for St. Joseph County,
Michigan. Additional information on these individuals is.
presented in Attachment 1.

I. CHALLENGES FACING RURAL HOSPITALS IN MICHIGAN

TRAH is relatively small, but we face nearly all the challenges
presently encountered by hospitals throughout the United States.
In many ways, the Three Rivers area is a microcosm of the
industrial heartland of this country. We are a historically
prosperous community that is experiencing a deteriorating

256

industrial base, an increasingly less affluent population, and an
increasing demand for health care services due primarily to the
shift in demographics to an older population.

We want to focus today in three critical challenges facing TRAH,
Medicaid/Medicare reimbursement, access to health care for the
uninsured, and m.edical liability reform.

A. Medicaid/Medicare Reimbursement

The most critical problem facing rural hospitals in Michigan is
financial solvency. It is well known that Medicaid, and to a
less'er extent Medicare, reimbursement levels are not adequate to
support the long term viability of rural hospitals. At TRAH, our
patient mix is approximately 70% Medicaid/Medicare, 25%
Commercial Insurance/Blue Cross, and 5% self pay. Historically,
we have been able to cover our Medicaid/Medicare shortfall by
cost-shifting to commercial insurers. This was a financial fact
of life which we disliked, but for which there was no
alternative. As health care costs for businesses have risen
during the past few years, we have found it increasingly
difficult to recover the Medicaid/Medicare shortfall by cost-
shifting. The result has been that most rural hospitals in
Michigan have experienced deficits for the last three years.
Fortunately, TRAH has been able to operate at about a "break
even" level, but without an increase in Medicaid/Medicare
reimbursement, the long term financial viability of our

257

institution is very much in doubt.

B. Access to Health Care for the Uninsured

Due to the loss of manufacturing jobs in our area and both the
resultant increase in unemployment and shift to lower-paying
service sector jobs, we have experienced a significant increase
in the number of families without medical insurance. Many of
these people are working 2 or 3 part-time jobs just to make ends
meet. For TRAH this has translated into an increased utilization
of our Emergency Room as a provider of primary health care. Not
only is this prohibitively expensive, but people often delay
see)<*ing medical care for relatively minor ailments until they
have progressed into life-threatening emergencies. In one of the
richest societies in the world, it is difficult to understand how
an adult could not have access to necessary health care, but it
is inexplicable when the victims are children. Attachment 3
illustrates this access issue.

C. Medical Liability Reform

Michigan has the dubious distinction of having the highest
medical liability insurance premiums in the Unites States due to
unconscionably high medical malpractice injury awards. This is
good news for trial lawyers, but bad news for women seeking
obstetric care. In rural Michigan, it is becoming commonplace
for community after community to go without an obstetrician.
Most rural hospitals see their primary missions as providing

258

first rate eiriergency care and delivering babies. In the current
health care climate, it is becoming increasingly difficult for
rural hospitals to achieve either of these missions.

II. SUGGESTIONS FOR CONGRESSIONAL ACTION

We believe that community hospitals in small towns are a vital
part of the U.S. health care system. With enlightened public
policy, they can once again thrive. If left unattended, they
will perish. We believe the following commonsense solutions will
go a long way towards assuring the viability of rural community
hospitals :

1. Adjust expenditure priorities within the Health Care
Financing Administration such that Medicaid/Medicare
reimbursement rates for rural hospitals cover costs and provide
modest operating margins so as to assure the financial solvency
of well-managed institutions.

2. Rather than focusing Congressional attention solely on
providing health insurance for the uninsured, consider creation
of competitive community block grants to encourage development of
alternative approaches to health care delivery for the poor and
near poor. It is sometimes overlooked that it is not health
insurance that is needed by these people so much as it is health
care they need.

259

3. Create incentives for physicians to provide care either free
of charge or at substantially reduced rates for the poor and near
poor. Congress should consider providing physicians with tax
credits, and exempt from taxation income earned'-by physicians for
care provided at substantially reduced rates.

4. Enact Federal medical liability reforms, especially in the
areas of obstetrics and emergency care, that v;ill preempt state
laws and which will strike a fair balance between the interests
of injured parties in reasonable compensation and the interests
of society in assuring the availability of essential medical
services .

III. CONCLUSION

Again, we thank the Subcommittee for inviting our participation
in this hearing. We look forward to working with Members of the
Subcommittee or their staff on public policy initiatives that may
result from these hearings.

260

Attachment 2

Three Rivers Area Hospital Description
Three Rivers, Michigan

Three Rivers Area Hospital is a 60 bed genera 1 -acute hospital
operated as a hospital authority under Michigan Public Act 47 of
the Public Acts of 1945 since transfer from the City of Three
Rivers in 1979. The Hospital experienced a severe financial
crisis prior to the transfer and has since recovered financially,
built and inhabited new physical plant in 1907 and has
established financial viability. The success of the Hospital is
directly attributab]e to the strength, courage and judgement of
the Authority Board v/ith Quorum Health Resources of Nashville
Tennessee providing executive, financial and operations
leadership since 1980.

Challenges to the Hospital include: financial losses on patient
care, recruitment of healthcare professionals, ability to
diversify into healthcare delivery and increased operating and
insurance costs due to litigious patient attitudes.

During 1991, the Hospital successfully opened an eleven bed
inpatient rehabilitation unit, a " distinct part" unit under
the Medicare program. Outpatient services are extremely busy and
have greatly exceeded the capacity established in the new
facility designed in 1987.

261

Attachment 2

Conversion of diagnostic and therapeutic spaces to better serve
outpatients will probably require construction well in excess of
the Certificate of Need threshold, an unnecessar-y and onerous
deterrent to effectively serve this shift in healthcare delivery.

Psychiatric inpatient care has been considered and granted a
Certificate of Need with a $1.1 million conversion and
construction cost; uncertainty of reimbursement led the Authority
Board to decline establishing this needed service in Three
Rivers, Michigan. Physician services are inaccessible to many
patients in the llospita], service area. Specialties needed
include: Pediatrics, Obstetr ics/Gynecology , Orthopedics and
Family Practice. Nev; physicians have found successful
practices here. But, physicians in training have no experience
and develop no attraction to the broad clinical requirements of a
rural practice; even though board certified specialists offer
Specialty Clinics on the campus, young physicians are reticent to
commit to practice in the rural setting.

Medical liability costs are astronomical compared to other
states; for this reason, the Hospital is now providing financial
assistance to physicians for medical liabili.ty insurance premiums
related to practicing obstetrics and pediatrics.

Convoluted administrative processes in billing for patient care
and meeting outdated Peer Reviev/ Organization patient care

262

Attachment 2

criteria further degrade the attractiveness of private practice
for physicians. Physicians in solo private practice find a heavy
burden in these administrative challenges. Group practice is
generally not available in our rural areas, and such multi-
physician group practices attract new physicians because of
reduced time demands and simplified .administrative concerns.

Three Rivers Area Hospital has succeeded in: recruiting and

establishing needed physicians; cooperating with District Health

Department in serving its population; improving outpatient

services; diversifying inpatient care; moving forward in

diag/iostic, therapeutic and prevention services; and providing

all healthcare services to the Medicaid patient financially

possible .

263

YFC

The Youth and Family Cabinet of St. Joseph County ^

November 15 , 1991

TO:

Represent.ative Glenn Oxender
Senator Paul Wartner
U.S. Representative Fred Upton
Governor John Engler
Representative Raymond Murphy
House Speaker Lewis Dodak

FROM:

Medical Staff, Sturgis Hospital

Medical Staff, Three Rivers Area Hospital

Youth & Family Cabinet of St. Joseph County:

Department of Social Services

District Health Department

Community Mental Health Services

Juvenile Court, Judge Thomas Shuraaker

Substance Abuse Council

Intermediate School District

Domestic Assault Shelter

RE: Health Care Access Crisis

Please review the attached Position Paper that summarizes the concerns of the
above signatories to this memo, and contact the office of Mr. Larry Hermen,
Executive Director, Community Mental Health Services of St. Joseph County at (616)
273-2000 regarding your attendance at a briefing for the media scheduled for
Thursday, December 5, at 7:00 PM, in the conference room of the ISD building at
62445 Shimmel Road, Centrevllle. Our purpose is to alert those responsible parties
to the ultimate financial and societal cost now being incurred due to the limitations,
inequities , and barriers to treatment in the existing Medicaid reimbursement system ,
as it affects St. Joseph County children and famiUes.

The briefing will be structured as a forum for testimony by health care
providers and response by legislators to local concerns. Specific suggestions and
solutions may be proposed that could lead to support of existing or creation of new
legislation. Your leadership in this effort would be greatly appreciated.

cc: St. Joseph County Medical Society
St. Joseph County Dental Society

Community Menial Hoolih • Dcp.irtmcru of Social Services • Disuict Health Department • Domestic Assault Shelter Coalition
St. Joseph County Intermediate School District • St. Joseph County Probata Court • Substance Abuse Council

264

Position Paper

HEALTH CARE ACCESS CRISIS
IN ST, JOSEPH COUNTY

SUMMARY: Health care providers and public agencies in St. Joseph
County, Michigan are alerting the State to the potential serious
and long term impact on the basic health care of children and
families from low income hom.es, directly due to the existing
problems found with the State/Federal Medicaid payment system.
Unless the State Legislature streamlines the current system,
removes the economic disincentives found by physicians who wish to
treat this diverse and needy population, and limits the liability
found uniquely related to the practice of serving this population,
the resulting loss of basic health care for thousands of citizens
will cause an ultimate long term and permanent societal cost in
dollars and productivity for future generations.

ST. JOSEPH COUNTY EXPERIENCES:

1. SERVICE COSTS. Few physicians are available to serve the
Medicaid patient, without establishing strict rationing,
quotas, or "acceptable fiscal loss limits" within their
private practices. Those physicians who serve greater than
15% Medicaid cases in their practice run the risk of eventual
financial ruin and potential cessation of their private
practice. The recent reduction in the Medicaid office visit
payment due to the State fiscal crisis has accelerated the
shift of patients from physician based care to hospital
emergency care. Hospitals in Three Rivers and Sturgis have
begun to notice a sizeable increase in the Medicaid patient
service demand, often for routine health care needs that, when
delivered in a hospital setting, dramatically increase the
ultimate cost to the State and taxpayers. Hospitals have begun
to find themselves responsible for the large number of
"Medicaid refugees" from the former private physician care
system. Emergency Department care is, by nature, brief and
episodic. If it becomes the only source of health care for
Medicaid recipients, it will result in a less comprehensive,
less preventative, and less consistent approach to health care
than the traditional physician based office care. Ultimate
costs to society may become enormous if this trend becomes
"the system of care" for Medicaid paid outpatient services.

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Position Paper

Health Care Access Crisis

Page 2

2. BUREAUCRACY. Physicians who continue to treat Medicaid
clientele find that the paperwork/documentation burden alone
is often enough to discourage further acceptance of new
patients. The excessive use of State regulatq,ry approaches to
medical oversight and "quality assurance" may in fact
discourage the very same practice of creative and personal
quality health care that it attempts to guarantee. The
likelihood of additional MPRO reviews that comes with the
increased acceptance of Medicaid patients becomes a
significant reason for hesitancy for many physicians who may
wish to serve this population and contribute to the public
good. One acute symptom of this dysfunction is found in the
apparent arbitrary policy of the Medical Services bureaucracy
to pend claims in times of uncertain state cash flow. The
resulting costs for physician rebilling and receipt of late
state payments are entirely born by each physician and never
recovered .

3. LIABILITY. As fewer physicians accept new Medicaid patients,
tl?e burden remaining on those who do has increased. Staff
physicians at both Three Rivers and Sturgis Community
Hospitals have recently indicated their interest in sharing
this burden through the development of a volunteer clinic
approach providing gratis professional services, possibly
sponsored by the District Health Department, or hospitals in
each community. This potential solution, however, requires
the State to extend its governmental immunity protection to
these volunteers as it does with its own delivery of state
provided health care services .

4. PUBLIC POLICY LEADERSHIP. All parties are disturbed over the
lack of successful public policy aimed at preventing the
social climate that may unintentionally encourage dependence
on social welfare programs. Medicaid is routinely referred to
as "the insurance program" for the poor, which it often
becomes when jobs, training, and incentives for productivity
are hard to find in many communities. We realize these are
social problems that require both state and national
leadership for resolution. Health care providers are now
finding that increasingly higher numbers of heretofore middle
income families are relying on the Medicaid system as their
health care safety net. It is time that legislators address
the need for new public policy that encourages and offers
incentives to physicians to serve indigent patients rather
than erecting additional barriers and obstacles.

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Position Paper

Health Care Access Crisis

Page 3

SOLUTIONS PROPOSED:

1. Improve the standard reimbursement for Medicaid office
procedures so as to encourage a greater sharing of the patient
population among community physicians.

2 . Streamline and reduce the required documentation and
regulatory overkill that diverts valuable professional time
from patient care.

3 . Impose reasonable limits and access to large settlements and
juried payments for noneconomic medical losses (pain and
suffering) now commonplace in the medical malpractice arena.
Provide mediation opportunities for health care practice
disputes prior to litigation and court involvement.

4. Provide governmental immunity for physician services when
provided in a local government or public agency operated
health clinic.

9/3/91

267

Mr. DiNGELL. Thank you. Mr. McDonough, do you have any com-
ments? The Chair will recognize my colleagues for questions. We
will start with Mr. Upton.

Mr. Upton. Thank you. Obviously, one of our primary concerns
is access to health care, particularly as we focus toward rural
areas. As you see things in St. Joe County, Jim, and throughout
our State, and I know there are a host of nightmares that have oc-
curred in terms of providing quality service, but what percent of
people that come for help do you think are either underinsured or
totally uninsured that you provide health care for?

Mr. Foster. Twenty-five percent, as a generalization, seek pri-
mary physical care in our Emergency Department through the
Urgent Care Program. Our visits last year, as I recall, less than
14,000 visits. Those people arrived, though, at a point of being very
far into the disease process in many cases.

A patient comes in with an earache, an infant with an earache,
and you discover pneumonia. So there is a lack of access across the
range for a number of people. I have no way of knowing what the
percentage is in our particular area.

Mr. Upton. I was delighted to hear in your statement regarding
locating a physician from Wayne State to come to Three Rivers
and, obviously, to fill the hole that is there, because I have talked
to various hospital administrators throughout our part of the State.

I know, as an example, in Allegan County, when the obstetrician
left, she was not replaced. They didn't advertise for someone to
come in. In border counties, Berrien, St. Joe, Branch, I know there
have been real shortages. Particularly as we look to Indiana and
Ohio, the malpractice rates our physicians pay, sometimes tens of
thousands of dollars higher than if they would move just a couple
of miles south to the next State. I wonder if you might elaborate on
those examples for our panel today.

Mr. Foster. We are very fortunate at Three Rivers to resident
obstetricians-gynecologists, to join other family physicians. Babies
are a booming business for us, part of that coming through the dis-
trict health clinic, where three physicians provide prenatal care, as
well as deliveries.

We have, as a hospital, entered into a relationship with those
physicians providing obstetrical care, to assist them with excessive
premiums in gaining, in buying professional liability insurance. It
is something we felt that we needed to do in order to maintain the
viability of their practices, and one of those physicians was looking
at an assess of $50,000 to continue her practice in doing obstetrics
and gynecology.

That is a very stiff premium payment to make when the physi-
cian is operating her own business. We have, in order to assure
that service both to the district health department recipients and
the whole range of clients in Three Rivers have gotten into that
with that group of physicians.

The other conditions that we find is that— I know of a number of
hospitals that physicians have left, and I think that is a significant
part of the challenge that we have, is rural hospitals. It is not just
the fact that the liability insurance, when you add a very heavy
Medicaid population, in many of their practices the practice simply
becomes financially inviable.

268

Mr. Upton. Dr. Smith, when he was here earlier, talked a little
bit about the progress they have tried to make with regard to
streamlining forms, reimbursement forms, paper requirements. As
I said then, I have heard so many complaints as I traveled across
the State. Have you been satisfied with the progress the State has
made?

Mr. Foster. The physicians, as we all do, try to contain the over-
head in their offices, and to receive a very small percentage of
their charge for a given procedure or office visit; and to have to bill
it numerous times in order to get it paid is not acceptable to them,
one of the reasons that many of them have stated they ceased to
offer services to new Medicaid patients. There is one physician on
our medical staff at the present time who will accept new Medicaid
patients. All of them will provide care for Medicaid patients who
are presently in the practice, but those newcomers are not accepted
in the practice. The billing procedures, and I think the peer review
follow-ups, are a major part of that resistance.

Mr. DiNGELL. If the gentleman will yield, payments by Medicaid
and the slowness of those payments also is a problem.

Mr. Foster. Exactly. We are presently at about $17, I think,
having just come back from $14 for an office visit. When you add to
that the slowness of having a cash flow and the perceived increase
in the liability risk, medical liability of that clientele, then they
have reasons that they restrict additions to their practice.

Mr. McDoNOUGH. Mr. Chairman, we heard earlier about 600-bed
hospitals with 50 people involved in billing. We are a 60-bed hospi-
tal and we have about 15 people directly involved in billing.

Mr. DiNGELL. Your ratio is higher, but higher because you prob-
ably have a larger number of form filings to make relative to your
number of patients, is that correct?

Mr. McDoNOUGH. And multiple filing until we get billed.

Mr. DiNGELL. Would you say generally the statement is that bil-
lings tend to be about as high as I indicated, or as high as you are
indicating?

Mr. McDoNOUGH. Yes.

Mr. DiNGELL. I thank the gentleman.

Mr. Upton. One further question. I know my time has expired. I
know that Three Rivers has, correctly so, I think, tried to focus
more attention on outpatient services, preventive health care,
thinking they can save money in the long run.

But because of the recent reduction in the Medicaid program in
the State of Michigan, have you seen a greater shift perhaps to-
wards emergency room than physician-based care? Has it been
much harder to achieve?

Mr. Foster. Those patients are unable to achieve physician serv-
ices at the present time in the office, and the only alternative then
is to come to the emergency department, which generally our im-
pression is that those people will resist that.

They will wait until very late in the disease process to seek care
at the emergency department. I trust there is no restriction or
hurdle for them to get over at my place. That certainly had better
be true, but it is just much easier and much more desirable to have
that physician relationship which they presently aren't able to get.

Mr. Upton. Thank you. I yield back the balance of my time.

269

Mr. DiNGELL. The Chair thanks the gentleman. The gentleman
from Colorado, Mr. Schaefer.

Mr. Schaefer. Thank you, Mr. Chairman. I want to pick up on
this form thing for one second. It came up earlier in a conversa-
tion. If indeed there is a small mistake on the form, it goes in, it
comes back, OK, so we are talking here a period of a month, 6
weeks, or whatever, and not only are you delayed in getting the
dollars, but also there is a possibility of breaking the law every
time you make out one of these things and you don't do it right.
Isn't this correct?

Mr. Foster. That is correct.

Mr. Schaefer. It seems to me one thing that has come out of this
today, is the fact that we have to do our darnedest to simplify these
forms, not only from that benefit, but because I do not want to con-
tinue to lose doctors that take care of these people.

You made a couple of statements here. We have problems in Col-
orado, in rural areas. How do you get physicians out there and how
do you hold them? Is there a program in the State of Michigan at a
reduced cost for tuition if a physician would agree to serve in a
rural area for a 3- to 5-year period?

Mr. Foster. Yes. There is a Public Health Service program in
which physicians have been able to — I am sorry, the term is work
off, to have that forgiven over a period of service within our area,
and for a number of years, our hospital benefited by physicians in
the emergency department who were in that program.

A neighboring community, Dowagiac, has used a similar ap-
proach in having pediatricians at their hospitals. In one instance,
of those physicians that have come to us, we succeeded in locating
that physician in our community. He is a board-certified emergen-
cy physician, director of our medical — medical director of our emer-
gency department, and the others have worked through their

Mr. Schaefer. Obligation.

Mr. Foster. Yes, thank you. And then they have moved to other
things. We work very closely with one of those in particular, and I
think we were close in terms of offering her an attractive practice
opportunity. She subsequently relocated with her husband, who
had also been in that program, to Grand Rapids, and they live
there now.

Mr. Schaefer. Also, you talk about the emergency room. In the
State of Colorado, the number of people that go into the outpatient
has just shot completely up. More and more people are going out-
patient and trying to stay away from going into the hospital on a 2-
or 3- or 4 day basis. That is true with you, right?

Mr. Foster. I would rather be at home than in the hospital.

Mr. Schaefer. I think that may be part of it, but the other part
may be affording the cost of staying 2 or 3 days.

Mr. Foster. Yes.

Mr. Schaefer. Ms. McParland, you stated you know these budget
cuts and you stated some cases that we would all dearly love not to
have. From your experience, these are mostly the elderly, the poor,
disabled or children?

Ms. McParland. Congressman Schaefer, I bring up the elderly
and disabled particularly because the programs in place in the
State of Michigan were created to provide assistance to the dis-

270

abled who don't receive SSI or other Federal benefits. They were
formerly receiving State-funded general assistance.

I guess I point those out by way of showing how deficient the so-
called safety net is when it is not providing assistance to the very
most vulnerable, those whom these programs were allegedly cre-
ated to care for and they are not. There are many people some-
where in between who are also not receiving medical care or any
form of cash assistance.

In my written statement that is now part of the record, I have a
piece on there about what the so-called employables are. It is a
group often overlooked because so much of the rhetoric involves
cutting off welfare for the able-bodied single people.

Again, of course, in an ideal situation with a decent economy,
those sorts of goals are laudatory. However, that is not the case in
Michigan, and we have thousands and thousands of people who
present vocational barriers, lack of transportation, there is no em-
ployment and training in this State anymore of any significance,
who are not going to become employed.

I included some excerpts from a study of the State of Pennsylva-
nia done by Professor Halter from the University of Illinois that
was conducted in the 2 to 3 years following the termination or re-
striction of general relief in the State of Pennsylvania. And what it
showed was it took the best group or the people who would be the
most likely to find employment, and out of that group, only 10 per-
cent— and this was with diligence in looking for employment — ^were
able to find any employment of any duration in the following year
to 2 years.

In this recessionary economy in Michigan, I think that gives us
some clue as to what is going to happen. Obviously, that group of
people who are not receiving cash assistance are also not receiving
any medical care. The indigent medical care for people in this
State who aren't on SDA or State family assistance, families with
children, doesn't exist.

Maybe if you have a life-threatening condition and need a so-
called life-sustaining medication, you will get it, and that is it. Ob-
viously, Wayne County has the Wayne County Care System. It has
some flaws, but compared to what is going on out of State, it is not
that bad.

Mr. ScHAEFER. What about the immunization program for young
children, for children under the age of 3? Has this been cut off, or
is it continuing?

Ms. McParland. I am not aware of it being cut off or of any sig-
nificant cutbacks. I believe that is pretty much a federally-funded
program, on a match basis, I assume. I believe I would be aware if
that had been cut back, and I don't think it has been.

However, some of the early prevention and screening detection
systems for young children have been cut back in this State. Again,
you have one thing working OK, but when you have basic pro-
grams slashed and cut, that obviously has to undermine the health
and welfare of this population.

Mr. ScHAEFER. My other colleagues from Michigan may be more
aware of that. That is one program I always strongly believed in.
What about the workers? What will happen to them that were laid
off like, say, at Willow Run?

271

Ms. McParland. I think what will happen to them eventually is
what has happened to auto workers that were laid off and separat-
ed from employment over a decade ago. They spend a certain
amount of time on unemployment compensation benefits. If they
are lucky, they may be able to find other employment with equal
or nearly equal pay.

If not, they would have, at least in the past, ended up on general
assistance benefits to fill the gap, but those don't exist any longer.
Unless these people are extremely disabled, which means they
won't be finding employment eventually anyway, or otherwise
qualified for other programs, there won't be anything for them.

Mr. ScHAEFER. You are sa5dng if they don't find equal employ-
ment, they won't have health care.

Ms. McParland. Right. Obviously, they wouldn't have health
care, either, and would be going to find the health care in some
sort of government-funded system.

Mr. ScHAEFER. Has the private or volunteer sector stepped in on
this in the past to help these type of individuals?

Ms. McParland. The private and charitable organizations in this
State have done — taken heroic measures to fill the gap, but they
cannot. There are too many people placing too many demands for
too many different services in this State.

I will give you one example. Last April, this State stopped paying
for delinquent water and sewage bills under its Emergency Assist-
ance Program. Thousands, and I mean thousands, of people were
facing imminent interruption of water service within the weeks fol-
lowing that policy change.

Our office filed a lawsuit in the Circuit Court and got a restrain-
ing order. However, in the 3 or 4 weeks that the policy was actual-
ly in place, the American Red Cross, located in Kalamazoo; the So-
ciety of St. Vincent de Paul, located in Lansing; and other parts of
the State depleted their entire annual budgets on water bills for
these people who were cut off assistance in 1 month.

Now, obviously, agencies like that, if they deplete their entire
annual budget, the Red Cross had set up back in April something
called an emergency triage system, or whatever, because they
knew they would be inundated beginning in March, April and May
with requests for emergency housing, water bills, utilities and
other emergency medical needs, for example. Their budgets were
gone.

It is, frankly, not something they wished to advertise as such an
important health agency, but it is something that did occur, and
that is part of the public record in our lawsuit.

Mr. ScHAEFER. Thank you, Ms. McParland.

Mr. Adamany, in your statement you stated that without urban
medical care, health care for the poor and disadvantaged in our
cities, the cities are going to basically collapse. You emphasize, this
demonstrates no Federal or State health care safety net for the
most needy exists.

How much longer can we go on? How much time do we have
without people having basic services?

Mr. Adamany. About 2 years after we can no longer get volun-
tary Medicaid contributions. Probably survive as a financial entity

272

for about 2 years at the rate of — at any rate of losses of $40 million
a year we would begin to close our doors.

Mr. DiNGELL. Will the gentleman jdeld? Our committee submit-
ted a report. That program, I am told, will terminate this fall, at
the end of this year, because we were only able to procure a 1-year
extension through calendar year 1992, at which time we are going
to have to scratch around trjdng to figure out what we can do to
preserve the program you and Mr. Schaefer are discussing.

Mr. Adamany. Mr. Chairman, the last year before we became eli-
gible in Michigan for voluntary contributions, the losses in the De-
troit Medical Center were $40 million. We probably couldn't sus-
tain that for more than about 2 years, at best. In the past, we have
had some opportunities to engage in cost shifting but, of course,
there are more and more constraints on cost shifting, so it is very
tough to figure out how you continue to keep the doors of the emer-
gency rooms, clinics and hospitals open to all the people that come
to you at a loss of $40 million a year. To give you a sense, the total
volume in the Medical Center is about $960 million, so you deplete
what little reserves you have very quickly.

Mr. DiNGELL. I apologize.

Mr. Schaefer. I appreciate the chairman's comments. How many
people under the poverty level are shut out in Wayne County, ap-
proximately?

Mr. Adamany. Let's see.

Mr. Schaefer. I think I read somewhere it was like 350,000.

Mr. Adamany. Three hundred and fifty thousand is the number
that do not fit into any eligibility categories.

Mr. Schaefer. What about the 43,000 that were incorporated
into Mr. McNamara's county program? Is there in addition to? Are
we talking 400,000, or are we looking at 300,000, approximately?

Mr. Adamany. I think the 350,000 in Wa5nie County are people
who have no health care. I think that does not — that the 47,000 are
not included in the 350,000 because they have county care, so they
have some form of health care, no matter the character of it.

Mr. Schaefer. Mr. Chairman, I have no more questions. I want
to thank the gentleman for giving us the opportunity to use his fa-
cility here. It has been very excellent.

Mr. DiNGELL. Dr. Adamany is always doing something like that.
The gentleman from Michigan, Mr. Conyers.

Mr. Conyers. Thank you very much. You know, it is refreshing,
Mr. Chairman, to hear about lawyers that are working in the
public interest.

Michigan Legal Services, and Susan McParland in particular,
have done yeoman's work across the years, and I was about to raise
some discussion about how much free service is being dispensed,
but I noticed in your brief-like testimony that was submitted that
you say among other things, what alternatives exist to provide
health care services and other services with public ramifications,
that is, to provide food, drug abuse education and counseling, and
then you list free assistance with court hearings.

Here it is providers at these clinics seek specialty care from area
hospitals, universities, apparently with success. Attendance at
these clinics is limited by geography and limited hours. That is en-
couraging, because my impression is, when you go to an emergency

273

room in Detroit, you get emergency treatment. You are not given
comprehensive, preventive treatment. I go into them often enough
to see what is going on. You wait many hours.

I have had hospitals explain to me how they shrink their emer-
gency room so that when EMS is looking for someplace to take
somebody, they are filled up. They are filled up because they can
only take six patients a night, so anything over six goes to Ford
Hospital or down at the Center.

And I am happy to know that specialty care does come from hos-
pitals. I had a very short-sighted view of this. To hear it from you
is more reassuring than almost hearing it from anybody else.

Ms. McParland. Thank you. I might add, however, that these
services, although more complex and wide-ranging than in emer-
gency rooms, are extremely limited. These clinics — and there are
only three of them throughout the State, are seeking this help and
assistance from area hospitals and do, to some degree, receive
them.

However, the numbers in the population that these people actu-
ally serve, it is small, obviously, just by virtue of the size and their
extremely limited resources. I might add that since the State has
dropped the Medicaid option of substance abuse treatment, and
that is so limited, that is obviously putting a lot more stress on
clinics like this out in urban areas that are trying to fill that gap,
and they are obviously then not able to go on and do other things.
Their resources are depleted in that area.

Mr. CoNYERS. Well, we turn now to Dr. Adamany, whose friend-
ship goes back quite a way. He notified me that my niece had been
admitted to the same law school that I attended; and my brother.
My nephew sitting out here in the audience, Gregory Conyers, may
also end up on the list trying to crash these doors one of these
days.

But I am alarmed about the bleak picture that you have de-
scribed financially, in terms of the hospital's existence. It sounds
like the veterans' hospital that we have been working on to get
built down there may be the only thing around when it is finished
5 years from now, at the rate this is going.

I am very concerned about that, but because you are not a physi-
cian and are on the board, it gives me great hope to enter into this
discussion with you.

Much of this training is going on at the expense of the hospital
and the surrounding community that trains all of these wonderful
doctors, who are getting the greatest training on earth, and who
immediately take this training and then split for the suburbs. They
skip the rural areas, as Foster and McDonough can tell us in
detail.

I have been in Minnesota with Representative Colin Peterson
and my staff. These doctors get the heck out of the immediate city
and city university that benefitted them. They become specialists
to the third toe on the left foot, everything but what we exactly
need; primary care, family medicine.

And we have this incredible disproportionate ratio of specialists
at Bethesda Naval Hospital. I was told by the Chief of Surgery
there that in his class, only he and one other student went into
general medicine.

274

Well, the reasons for this are obvious. There is no money, and i
there is no status. We can't blame them in the kind of culture in
which we are all a part. i

But it would seem to me, in addition to giving the uncompensat- i
ed care which we are all grateful for, that somewhere along the j
line somebody in the medical community ought to say, there ought
to be more doctors going into the preventive family and basic pri- 1
mary medicines, which we don't have going on. |

And it is extremely disturbing. We don't know how to get that
placement. And I don't want to talk about it in terms of legislation,
but I need people like you that are working with people and have
some clout to see that we do this.

The number of minority physicians is still something that we are
talking about. I see Charlie Vincent all the time — not recently
since he became a political figure. I am not as close to him as I
used to be. But the fact still remains that we have more doctors
coming in from — and receiving training from other countries than
we have minority physicians coming through our system. At the
national level, we have 2 percent of the physicians in this country
being African- American or other indigenous minority.

We have got to kick this up to, modestlv, 6 percent to 12 percent,
six times as much as we have now. It can t happen without enlight-
ened people like you talking to some of these doctors for me so that
we get this message through, and so it doesn't always just result in
lawsuits and civil rights attacks and that sort of thing.

It seems that among reasonably dedicated people we could see
this and deal with these two problems that I am referring to, and I
think this should be a basis of your discussion before this commit-
tee.

Mr. Adamany. I appreciate your comments. You are right — I am
not a physician, but I think I can probably tell that the Dean's
blood pressure is probably going up behind me on this. But let me
start at the end of your list of concerns.

We do have very substantial programs to recruit minority people
into the physician-training programs now at the Wayne Medical
School. In addition to those who are regularly admitted, we have a
very fine program in which we admit students with high potential
but not very good academic records and give them what is called a
post-baccalaureate year, in effect giving them an additional year in
preparing them for the M.D. program.

We have had a good degree of success in that, so the percentage
of minority people in medical training has gone up. We are certain-
ly above the national numbers, not the 2 percent you describe, but
we are well above the 12 percent you describe nationally.

Similarly, we have addressed locally the concern about training
more foreign physicians than U.S. physicians, both majority and
minority races. We have — about 90 percent of our medical students
are from within the State of Michigan, and almost all of the re-
maining 10 percent from outside the State are U.S. citizens. So that
we also have moved a little bit on that. I wish we had solved all
our problems as well as we are addressing these two, Mr. Chair-
man.

Now, the problem of practice in the city as opposed to specializa-
tion in the suburbs is an extremely complex issue. At a minimum.

275

the entire incentive structure in medical care, the economic incen-
tive structure, is in favor of specialization and in favor of suburban
practice.

It is an interesting question, the extent to which we can expect
solitary individuals to depart from powerful incentive systems cre-
ated by the Nation's economic systems, including those mandated
or supported by the Government. So that we really are asking indi-
viduals to be heroes, and, while there are some heroes, the likeli-
hood there will be mass heroism is not high. So we have got to
rethink the incentive structures.

The other factor is one that was previously mentioned, and that
has to do with malpractice issues. I am going to let the Dean tell
you what a terrible malpractice cost situation we have, but before 1
do that I am going to speak not from a physician's perspective but
from a hospital perspective.

We had a lawsuit from a Medicaid patient who came into one of
our hospitals, without adequate prenatal care, gave birth to a baby
who by every morbidity factor should have died. The baby sur-
vived, but terribly, terribly handicapped. The physicians caring for
the mother and the baby, in rushing that tiny bit of life to the in-
tensive care unit, failed to take notes on every step that they did
for a period of about 4 minutes. The jury verdict was $19 million
against a hospital that provides 50 percent, more than 50 percent
of the live births in the city, many of them to women with no pre-
natal care and drug and alcohol abusers.

We settled that case. I am not at liberty to say the amount we
settled it for before we went to appeal, but I will tell you it was
more than one of the recent deficits in the whole Detroit Medical
Center.

Now, what is the lesson? We won't have such a lawsuit this year
or next year or in the year following. The lesson is we are scared to
death of malpractice lawsuits, and we will settle them in a profli-
gate fashion to avoid a $19 million judgment. We are a $950 million
a year corporation. No physician making any rational calculation
will subject themselves to that level of risk. So I think that we
have just an awful problem.

Mr. CoNYERS. What do you recommend? This is what we are here
for. Should we just cap it out at a few hundred thousand dollars,
and end your problem?

Mr. Adamany. I think capping, because of its arbitrary charac-
ter, not taking into account the severity of the injury, is rightly
frowned on by those of us trained as lawyers. The other side is that
there is nothing more arbitrary than the present system that be-
comes really a lottery. So we are going to have some amelioration
of this, and it may be that capping will be a lesser evil than the
one we have got, though it is still in the category of evils. It may be
we will have to have a national insurance pool to address these
problems.

Mr. CoNYERS. What about revising the elements of liability? I
mean, there is certainly something besides capping and a national
insurance pool. In Canada, if I dare raise the question of our
friends 3 miles away, the elements of liability are much different,
and you have to prove a lot more, and you get socked with the at-

276

torneys' and courts' cost and sometimes a penalty if you lose the I
case. I

And so it seems to me there are a wide range of legal consider- |
ations that would lead us to deal with this matter. '

Now, in this horror story that you have volunteered, let me just |
ask you this. Were the lawyers at fault? Was the judge at fault? j
Was the jury out to lunch? Was the law bad? How do you assess
this, since you have given us this bare-bones description of what is !
a horror story by anybody's definition? What happened? You mean
the doctors were faultless?

Mr. Adamany. Well, the doctors may have been at fault.

Mr. CoNYERS. The lady is nodding her head yes sitting behind
you, and is apparently familiar with the case.

Mr. Adamany. Let's assume the doctors were at fault. Let's |
assume everybody in the system functioned flawlessly except the
doctors. The fact is a $19 million settlement is far in excess of what
is needed to support that youngster in a life that will not be a full
life.

So that even making the assumption that the doctors were terri-
ble, which is not the assumption we make because that is a hospi-
tal where the people come to us with no prenatal care, significant
drug and alcohol abuse, and we have a wonderful mortality rate
given the high morbidity rates we have got. It is a hospital with a
superb track record. But let's give them that. We can still ask,
what does a $19 million settlement mean? It means that we have
gone well beyond taking care of that baby.

Mr. CoNYERS. Well, I don't know that, sir. You give me a set of
facts, you give me a conclusion, and then tell me, incidentally, that
the child

I am sorry. I see Chairman Dingell raise his gavel, and I think,
as chairman of another committee, I understand what that means.

But at any rate, let's continue this discussion. It is not necessary
that it be on the record. But it is important that I raise these con-
cerns with you since this is in the local and national interest as
well.

I thank you very much for your responses. Thank you, Mr.
Chairman.

Mr. Dingell. I thank the gentleman. The Chair also thanks the
doctor for raising the question. I have some modest familiarity with
this particular matter, too.

I would make one additional observation. The hospital in ques-
tion may very well soon go broke in good part because of this, and
it happens to be one of the very few places in Michigan where the
poor, where the Medicaid-eligible mothers can have a safe and a
decent pregnancy.

Ms. McParland, your comments were very interesting to me. I
hear often from experts on health matters that, when people are
without health insurance, they can and do get health care. They
get it through emergency rooms, free clinics or something of that
sort.

Now, in fact the evidence strongly suggests to the contrary, and
studies recently conducted by UCLA indicate that people who don't
have insurance and their children are about 30 percent less likely

277

to see a doctor. What would you tell us your experience would lead
you and us to believe?

Ms. McParland. I am not familiar with that study. It is clear,
however, that significant numbers of people in Michigan are not
receiving health care at all and certainly not adequate health care.
That is driven by the way the programs are structured. They
cannot — I have given a fair amount of detail to the committee
about the State medical care program.

I know Dr. Smith and Executive McNamara both pointed out
that people who want and need health care badly enough will ulti-
mately find it. That is our experience, and we represent classes of
plaintiffs who are affected by the changes in the restrictions in
medical care in this State. That shows us that that is just not true.

Firstly, to place that sort of burden on the elderly or disabled is,
you know, ludicrous to begin with. And, second, it is just simply
not there.

In the case of the Faircloths, who are named plaintiffs in the
lawsuit we just filed yesterday, they — neither of them are able to
get the test for their conditions that have been prescribed and that
they desperately need. Neither of them are able regularly to get
the prescriptions that they desperately need for their medical con-
ditions. These are not anecdotal situations. But they are represent-
ative of what is happening to thousands of people.

Also, in this State, and I don't think I mentioned it earlier, and I
know I heard when Dr. Smith testified he mentioned the Medicaid
option services that Michigan had dropped in the past 2 years.
They have also eliminated coverage for older QMB people, so elder-
ly and disabled people who previously were receiving Medicaid are
not, their incomes fall somewhere between $385 and $465 a month.
They are no longer receiving any Medicaid coverage in this State.
That option was dropped last year by Michigan. And about 17,000
people are affected by that reduction.

Mr. DiNGELL. I would like your experience on another related
matter. The same UCLA study found people without insurance who
have chronic and serious illnesses are one-third to one-half less
likely to seek care. Do you want to comment on that, even though
you did not, in fact, see the study?

Ms. McParland. Yes. I think that has a lot of validity. People
who have chronic ailments tend not to be utilizing the system to
the degree that people who are suffering from an acute ailment do.
So that it is the emergency room service and payment that is bur-
geoning as opposed to regular kinds of office visits and so forth,
which is pretty much backwards in terms of looking at efficient de-
livery of services.

People with chronic ailments, and we see it all the time among
our clients, they learn to live with them. Somehow they incorpo-
rate this into their daily lives. Obviously, it takes its toll, and that
sort of long-term deprivation will obviously result ultimately in
more serious health problems, which the system ultimately pays
for, of course.

Mr. DiNGELL. The same study found that when without insur-
ance people who even have serious symptoms such as loss of con-
sciousness and bleeding are fully 50 percent less likely to seek care.
Does that conform with your views?

278

Ms. McParland. It conforms with our experiences, yes, especial- |
ly in the past IV2 years. I am aware of several people who have \
acute medical problems for which they are not receiving any help. 1

For example, one of our plaintiffs has a condition of uterine I
tumors that are so severe they cause her to hemorrhage almost on |
a daily basis. Because of the restrictions on hospital and surgical ;
care in the State medical program, she has gone without the pre- !
scribed surgical procedures for 3 months.

She is not alone in that experience. There are many others like
that that I am aware of. So, yes, I think that statement and conclu-
sion is true.

Mr. DiNGELL. Thank you very much.

Mr. McDonough?

Mr. McDonough. Chairman Dingell, there was a recent study in
the State of Michigan that might provide some of the information
you are seeking. The Partnership for Michigan Health Care, which
is a coalition of the Michigan Chamber of Commerce, New Detroit,
several other members, did a poll last year, and in that poll they
found that within Wayne County and western Michigan, about 40
percent, somewhere between 40 percent and 50 percent of people
without health insurance will seek care when they need it from
emergency rooms. Somewhere between 20 and 30 percent will go
without care.

So you will see about 15 percent go to a free clinic when that is
available, and they are available fairly often, and somewhere
around that same amount will go to a family doctor. Of course, all
people not on insurance aren't necessarily poor. Some people just
don't have insurance. But it is a very high percentage of people, by
their own measure, who say, when I am not well, I will go to the
emergency room, or I will not get care at all.

Mr. Dingell. When they go into an emergency room, that means
that the hospital has got to deal with them until they are well
enough to return them to society.

Mr. McDonough. That is correct.

Mr. Dingell. If it is a serious disease or if it is a serious condi-
tion requiring surgery, you have got to give that and then you have
either got to find somebody to pay the bill or you have got to eat
the bill. And in the case of a 60-bed hospital, that could be a seri-
ous matter, could it not?

Mr. McDonough. It doesn't take more than one or two people to
put us in a very bad shape.

Mr. Dingell. The interesting phenomenon I have seen in health
insurance, in a lot of instances employers for a lot of reasons feel it
desirable or absolutely necessary to move to a different carrier in
which event they find that they might get a more agreeable rate.
But they get coverage which does not include preexisting condi-
tions.

So here you have got a guy who is working, covered by health
insurance, his health insurance switches, and all of a sudden if he
has, let's say, diabetes or cancer or something of this kind. Even
though he has been working and doing his best to be a productive
citizen, his condition is not covered by his carrier. Is that a
common problem?

279

Mr. McDoNOUGH. That is quite common. We see the preexisting
exclusion problem on a regular basis, when people are just left out
in the cold. Beyond that, probably more so than in the urban set-
ting, we see people, your typical family, mom, dad, two or three
kids, between the parents working three, sometimes four jobs, at
McDonald's or wherever to make ends meet, no, health insurance
whatsoever.

I was in our emergency room with one of my children who had a
broken arm. In walked a mom and dad, three kids with them, hold-
ing a baby, right next door. I couldn't help but overhear. They had
no insurance. The baby had been coughing for about a week. Mom
and dad hadn't slept for two nights, didn't have insurance, didn't
have a doctor, didn't know what to do.

The mom said, I think the baby has infected fleabites. That was
true. The baby also had pneumonia. We almost lost him. They
didn't know what to do. They didn't know they could come in to see
us. It was a tragedy. Fortunately, that child lived. I would imagine
there are a lot more that don't make it.

Mr. DiNGELL. I agree, this is an important issue, but let's come
back to the situation of preexisting conditions. They walk into a
hospital, and you are stuck with the bill because the carrier simply
will not pay the bill to cover preexisting conditions, is that right?

Mr. McDoNOUGH. That is correct. We are a community hospital.
We have to provide the service.

Mr. DiNGELL. The same thing would happen to the doctor, would
it not?

Mr. McDoNOUGH. Yes.

Mr. DiNGELL. If you were seeing this patient on an outpatient
basis for that condition, all of a sudden you might find that condi-
tion was no longer covered, and he would not have eligibility for
treatment under the policy, nor would you feel able to pay for con-
tinuing services, which you are under the law obligated to provide,
isn't that so?

Mr. McDoNOUGH. We are legally obligated. We are also morally
obliged. We don't turn anybody away.

Mr. DiNGELL. Well, Dr. Adamany, Ms. McParland, Mr. Foster,
Mr. McDonough, we thank you for your invaluable assistance to
the committee. We know you, Mr. Foster and Mr. McDonough,
have come some distance, and we thank you for your valuable
time.

The Chair announces the next panel will be composed of Dr. Su-
zanne Adelman, Past President, Michigan State Medical Society,
and Mr. Richard Hiltz, representing the Michigan Hospital Asso-
ciation, President and Chief Executive Officer of Mercy Memorial
Hospital, Monroe, Michigan. I am pleased to report that is in the
16th district.

Dr. Adelman, Mr. Hiltz, we thank you for being with us, and also
your associate. We will recognize you for such statements as you
choose to give us, starting with Dr. Adelman.

280

STATEMENTS OF SUSAN HERSHBERG ADELMAN, ON BEHALF OF
MICHIGAN STATE MEDICAL SOCIETY; AND RICHARD S. HILTZ,
PRESIDENT, MERCY MEMORIAL HOSPITAL, MONROE, ML, ON
BEHALF OF MICHIGAN HOSPITAL ASSOCIATION, ACCOMPA-
NIED BY CHARLES L. ELLSTEIN, GROUP VICE PRESIDENT,
HEALTH DELIVERY AND FINANCE

Ms. Adelman. Thank you very much, Congressman Dingell, Mr.
Chairman. We have submitted a statement which I would Hke in-
corporated into the record.

Mr. Dingell. Without objection, your full statement will appear
in the record, and we will recognize you for such statement you
choose to make.

Ms. Adelman. Thank you. I would like to make some comments
selected from that testimony, and also make some additional com-
ments, if I may.

The problems we are facing in Medicaid, I think, have been dis-
cussed at some length today. The ones I heard being discussed are
not the only problems, there are even more. I would like to bring
up some additional problems, and also to suggest some directions
that we would like to look to for the future.

Just to enlarge upon my own background, I am immediate past
president of the Michigan Medical Society. I am a pediatric sur-
geon, I have an office down the street. I used to live next door to
this building for 15 years, and my husband is a law professor that
works across the mall from here.

I also practice at Children's Hospital of Michigan and Oakwood
Hospital. My practice, including patients paid for directly by Med-
icaid and paid for by Medicaid HMO's, is approximately 60 percent
Medicaid, so I am well aware of the problems we are discussing.

The problems we are primarily discussing today I think center
around Access to Care and the cost of care. The AMA, looking at
this problem, has attempted to come up with some suggestions, and
I would like to enlarge upon just a few of the proposals in the
AMA's Access to Care program.

The AMA Access to Care proposal does begin by asking for major
Medicaid reform, specifically extending coverage to at least 100
percent of the poverty level. It also asks for addressing some of the
disincentives for physicians to take care of patients on Medicaid by
at least reimbursing at the same level of Medicare.

The particular care that Congressman Conyers pointed out of the
difficulties of physicians working in the inner city are made consid-
erably worse by the very high percentage of Medicaid patients, the
very low compensation of Medicaid patients, is about 33 cents on
the dollar, and the very high risk of liability suits, Wayne County
being the fourth worst region in the country. It is an exceptionally
unfavorable situation.

The other, if you like, pillar of the AMA proposal is requiring
employer provision of health insurance. We are very well aware of
the difficulties from small business and, in fact, small business and
employees of small business are the key to some of the additional
problems with Medicaid.

We have particularly the experience in Michigan of employees of
small business, mom-and-pop stores, gas stations, et cetera, who

281

find that their employers cannot or will not provide insurance, and
for that reason, these people find that they need to use Medicaid as
the insurer of last resort. There is a significant burden of Medicaid
patients that comes from this source, people who are, in fact, em-
ployed and who have found ways of getting Medicaid to reimburse
their care, and that is something that needs to be understood, and
it is a direct result of the fact they don't have insurance supplied
through their employer.

In order to make it possible for their employers to cover them,
there are a variety of things that can be done, many of them are
insurance reforms, purchasing pools, community rating. There are
a number of things that are already out there and well-known and
well-recognized; tax incentives, changes in the tax system.

For those who are simply uninsurable, we would like to see State
level risk pools in all States. There are a variety of ways these can
be subsidized. In fact, some States are already doing that for — I
think it is for the uninsured, and that — otherwise uninsured, and
in some States, in 11 States today, these are in existence and they
are subsidized by State tax credits.

We do feel Medicare reform is necessary and have a list of pro-
posals for that, and we also feel long-term care coverage needs to
be taken out of Medicaid and separately financed.

As far as professional liability reform, there are quite a number
of proposals that we have, most of them appear in either Nancy
Johnson's bill or the Hatch bill, and I think if you look at the pro-
visions of that bill, you will see the kernel of suggestions we would
like to make.

In addition, there are other suggestions that have been made
that are specific to Medicaid, and these include various ways of in-
demnifying physicians or protecting physicians from the full liabil-
ity of taking care of Medicaid patients. While nobody wishes to de-
prive Medicaid patients of the right to sue, it would be a far differ-
ent matter if the suit were directed against the State.

If, therefore, the physicians were employed under contract or
were taking care of the patients in public health clinics under a
contractual arrangement with the insurance provided by the clinic
for that line of service, then that would mean the suit would be
against the State. The State would soon become conscious of the
level of financial exposure involved and would soon have additional
understanding of the need to enact comprehensive professional li-
ability reform.

The additional suggestions that have been made include ways to
make insurance portable. The real pressure right now — one of the
many real pressures for reform of the health care system comes
from unemployment and the threat of unemployment, the threat of
closure of the Willow Run factory and the threat to people who
have otherwise been working and uncovered faced with losing their
insurance.

If insurance were portable, this would be less of a concern. There
are a variety of ways to try to make this portable. One is to prohib-
it pre-existing condition exemptions, to prohibit waiting periods, to
make the insurance continue for a certain number of months after
employment, and there are some additional ways which I have in
my notes and I don't see them right now.

282

At any rate, there are a number of ways to prevent the new em-
ployer from excluding the patient from insurance and to make the
insurance that came through the old employer continue on. There
are other ways, of course, of setting up health insurance IRA's,
which would be in themselves portable. If these were set up and
financed, either through tax credits, through the employers,
through vouchers — there are a whole variety of ways these could
be set up, then the health insurance IRA would move with the pa-
tient or the beneficiary and would not be tied to the previous em-
ployer at all.

The problems in Michigan with Medicaid are similar to the prob-
lems in many other States. We have heard many of them. As an
example of the extent of the problem, there are today only a hand-
ful of obstetricians and only a handful of pediatricians able to stay
in practice — in private practice, and take Medicaid patients in the
city of Detroit. |

Again, Congressman Conyers has asked why that should be, and i
why people don't stay in the city, and I could point out people like,
for instance. Dr. Herman Gray, who now works for the State for
Medicaid, who was in practice down the hall from me as a pediatri-
cian, one of the most respected pediatricians at Children's, very j
greatly beloved, and had to give up his practice. He had to support
his family. He had to close his office and seek employment with the
State. He just quit.

At the low point of the financial level of my practice, there is no
question the reason my practice remained financed is because I am j
married to a law professor. Had I not had that cushion, I would not
have been in practice anymore. |

The administrative problems with Medicaid have been comment- i
ed upon. I might point out, there is an additional wrinkle to the |
administrative problems of Medicaid that I can tell you about from [
experience. That is, we have payment on Medicaid patients, both |
from the State and also from the so-called Medicaid HMO's, and it |
is worth commenting on the difference. I

The State, I will tell you, if you know how to tell Medicaid and i
you are experienced, the State pays reasonably soon. For people i
who aren't too familiar with it — our expectations aren't very high. '
We don't expect much in our office, but they do eventually pay.

However, the Medicaid HMO's have a far worse track record, j
They go on for significantly larger numbers of weeks, in many in- I
stances need a lot more telephone calls and requests for payment.
We would be delighted if the HMO's would pay in 45 days. We also
see the Medicaid HMO's imposing more red tape than regular Med-
icaid itself.

We see the need for more pre-authorization, more phone calls.
We see more patients being directed to specialists of their choice,
which may or may not be the ones that we would choose. We see
skimming. We see patients who can be taken care of at a certain
amount of profit, let's say, by the tertiary hospitals, sent to the
cheapest possible hospitals, and only the most expensive patients
being sent to the tertiary hospitals. They have no way of making
up for their losses on the expensive cases. i

As we look at directing more of our patients into managed care
programs, we are talking about directing more of our patients, in

283

many instances, into Medicaid HMO's, and we have more problems
with Medicaid HMO's in terms of quality, in terms of billing, in
terms of paperwork than we do in Medicaid.

One of the things that is a success, and I am very proud of
having a part in starting it, is the Primary Sponsor Plan. It is
about 10 years old. Looking at the control of health care costs in
Wayne County, where it has started as a pilot project, the health
care costs are 14.3 percent lower than in the fee-for-service pa-
tients.

The hospitalization is lower. It means more people are going to
see a doctor, not the emergency room. There are 8 percent lower
emergency room visits. This is, even though the patient population
in the Primary Sponsor Plan have been selected— the people have
been directed into that program as much as possible who have a
greater need for health care than the fee-for-service population.

Again looking at it in terms of quality, has been very satisfactory
also. The quality appears to be a bit higher in the Primary Sponsor
Plan than in the fee-for-service program. The Primary Sponsor
Plan is, in fact, a gatekeeper plan in which these patients are going
primarily to private physicians who are being paid fee-for-service,
but also a $3-per-patient-per-month capitation rate for case man-
agement and for being assured to be available for 24 hours a day.

Patients cannot go to the emergency room unless they have the
OK of Primary Sponsor. Having overcome considerable legislature
objection in many quarters, it is now being extended and will be
offered throughout the State. It is similar to the program in Arizo-
na which Congressman Dingell knows about and has incorporated
in previous testimony.

In fact, when we were developing the Primary Sponsor Plan, we
were in Arizona telling them about it, and they got theirs up and
running before ours got started. The Arizona plan, as well as ours,
are two of the successful ones in the country.

Missouri also has a successful plan of a similar nature. Monroe
County, in Rochester, New York, my hometown, tried it, failed it.
New Jersey tried it but it was voluntary and it failed. Minnesota
tried it. They also had difficulties. Florida tried it and got into a lot
of difficulties, low capitation rates, legal delays and a bunch of has-
sles.

These programs have not worked in every State where they have
been tried, but the ones that did it the way we did, with good pa-
tient education, with good physician education and with good coop-
eration of the physician community and recipient community, have
done well. The ones that have not done well are the ones that tried
to be voluntary, had adverse selection and ran into State problems
with rate-setting.

As far as voluntary programs, charitable programs, I also have
considerable experience with that, having started a free clinic
many years ago in the Jeffries project, which is still going and been
incorporated into an HMO and have been involved.

We do have project HOW set up by Wayne Health. It goes to
church parking lots and delivers primary care and has a tertiary
care network of supporting people. Clearly, the problem with
health on wheels, it is too small. Voluntary programs are never
going to cover the waterfront. A combination of voluntary pro-

284

grams and community health care centers, particularly if you had
professional liability care protection for the physicians, is reasona-
ble and a viable consideration which I do recommend to you.

The sum of what I believe I am recommending would be Medic-
aid reform; be very mindful of the problems that you are asking for
if you force patients into managed care programs such as Medicaid
HMO's that we have in town. Certainly, some work better than
others, but you do run into unexpected difficulties with those. The
Primary Sponsor Plan is a model which is working extremely well,
which we would commend to you.

We would ask for small business reforms which would allow
small businesses to provide insurance for their employees with
State risk pools to cover those who are unable to fit into the em-
ployer-provided insurance. Those are medically uninsurable, or em-
ployers simply can't insure them.

There are a variety of insurance reforms whose importance
cannot be discounted. The importance of community rating can't be
overemphasized. The importance of eliminating pre-existence and
having coverage after someone loses employment. Those, in them-
selves, would make insurance almost completely portable.

Professional liability reform cannot be overemphasized. Physi-
cians are afraid to practice in Wayne County. They are leaving
Wayne County. It is because of professional liability, and it is be-
cause there is no way to cover the costs of professional liability
with the high percentage of Medicaid patients.

I think we have gotten rid of the myth that Medicaid patients
sue more. Nevertheless, they are being covered by Medicaid, which
pays much less than any other insurance, so if you have to pay pre-
miums of $60,000 or $80,000 a year, you have to get the money
from someplace. Not everybody is married to a lawyer.

There is another — there is another thought which is a very inter-
esting thought, and I will not try to take personal credit for that,
and it comes from the Heritage Foundation, whose thinking you
may or may not like, but it is a very fascinating concept, and that
is of refundable tax credits and refundable deductibles, and that is
covering, for instance, a variety of ways this can work, but you can
have high deductibles on your insurance which can be paid for by
the government by vouchers, prepaid.

If you have — this can work for poor just as it can for people who
have private insurance. If you have a deductible — $5,000, you
prepay it, poor people can't pay the money, obviously; you put the
money into an account, it is prepaid. They then would pay for the
services of lesser costs out of this sum of money, so it is there. They
can pay for it.

They don't have to go around humiliating themselves. They can
pay for it. But if they don't need all that money, then they get it
back at the end of the year. So, they have an incentive to watch
their payments and costs themselves.

They don't need a bunch — the health care plan doesn't need to
pay a bunch of utilization nurses to watch the pocketbook. They
would rather pay it themselves. If they need the care, they will
then pay for it. It is a very interesting thought, regardless of the
source, which I think takes some study and bears some consider-
ation, and I recommend it to you.

285

I think it is important again to emphasize pulling the finance of
long-term care and catastrophic care out of Medicaid. It doesn't
belong there. It is overloading it. We have considerably more mate-
rial, including recommendations and suggestions for cost contain-
ment.

The current thinking and the current effort on the part of orga-
nized medicine is strengthening the cost containment piece. There
is quite a bit prepared we would like to share with you. It includes
physicians sharing price information, insurance companies making
coverage limits known; cost sharing, which has to be pre-funded,
and a whole variety of other ideas. I think I will stop right now,
and I will be very glad to answer questions. Thank you.

Mr. DiNGELL. Doctor, thank you very much.

[The prepared statement and attachment of Ms. Adelman follow:]

58-688 0-92-10

286

Testimony
of the

Michigan State Medical Society
to the

Subcommittee on Oversight and Investigations
Committee on Energy and Commerce
United States House of Representatives

Presented by

Susan Hershberg Adelman, MD

Re: Access to Health Care

February 27, 1992

Mr. Chairman and Members of the Committee:
My ncune is Susan Hershberg Adelman, MD. I cun a pediatric
surgeon practicing in Detroit and also am the Immediate Past
President of the Michigan State Medical Society (MSMS) . MSMS is
pleased to have the opportunity to testify concerning the
important issue of access to health care for Medicaid
beneficiaries and the working poor.

My testimony is divided into three parts. In the first
section, I discuss the views of MSMS concerning the issue of
access to care in general. The second section focuses on the
specific problems and concerns with the Michigan Medicaid
program. The final section discusses the Physician Sponsor Plan,
an innovative program that provides cost effective, quality care
for Medicaid beneficiaries in Michigan.

287

GENERAL COMMENTS CONCERNING ACCESS TO CARE
Approximately 35 million Americans do not have either
private or government-funded health insurance. A large majority
of the uninsured, both in Michigan and throughout the country,
are working Americans and their families. Most of the remaining
uninsured are unemployed persons and their families who are below
the federally established poverty level but are not covered by
Medicaid.

MSMS strongly supports Health Access America, the AMA's
proposal to provide universal access to affordable, quality
health care for all Americans. I have included a summary of
Health Access America with my testimony. Two of the key
principles of Health Access America are reforming Medicaid to
provide uniform adequate benefits to all persons below the
poverty level and requiring all employers to provide adequate
health insurance coverage for all full-time employees and their
families. Both of these principles are discussed in detail
below.

MEDICAID REFORM

A major problem with the Medicaid program is that only
about 40% of Americans with incomes below the poverty level are
covered by the program. Under Health Access America, new
national requirements would be established to assure that all
persons below the poverty level would be eligible for and receive
a uniform set of adequate health benefits. The uniform benefit
package would consist of those services currently required by

288

Medicaid plus prescription drugs, rehabilitative services, and
emergency services. Each state should be permitted to cover
additional benefits beyond the uniform benefit package at its own
expense. Since the cost of covering all persons below the
poverty level would be considerable, a phased in approach may be
necessary.

Another significant problem with Medicaid is low
reimbursement levels for physicians, hospitals and other
providers. Inadequate reimbursement reduces access to care for
Medicaid beneficiaries. In order to improve access. Health
Access America provides that Medicaid reimbursement should be
increased to at least Medicare levels.

A growing burden on state Medicaid programs is the cost of
providing long-term care for the elderly as increasing numbers of
senior citizens are forced to spend down their assets in order to
qualify for Medicaid coverage. MSMS believes that private sector
coverage for long-term care should be encouraged through tax
incentives and an asset protection program with Medicaid coverage
provided only for persons below the poverty level. Expansion of
private sector coverage would reduce the pressure on state
Medicaid programs. Expanding long-term care financing to the
private sector is another key provision of Health Access America.

By mandating expansions to the Medicaid program. Congress
has succeeded in increasing access to care for many low income
persons. While MSMS supports expanding access to care, it is
unfair for Congress to mandate states to provide coverage without

289

providing adequate funding, particularly in these tough economic
times .

MANDATORY EMPLOYER HEALTH COVERAGE

The second key element of Health Access America is to
require all employers to provide all full-time employees and
their families with health insurance coverage. Under this
proposal, coverage would be made portable by eliminating
exclusions for pre-existing conditions, decreasing waiting
periods before coverage becomes effective, requiring community
rating and mandating that employers offer an open enrollment
period for employees who lose coverage under a spouse's health
plan. In order to ease the burden on businesses, the requirement
should be phased in over several years with only larger
businesses being subject to the requirement initially. In
addition, tax credits should be provided and risk pools created
so that new and small businesses can afford the cost of providing
health insurance coverage for their employees. The AMA is
working to develop reasonable cost containment measures which
would not negatively affect the quality of patient care.

PROBLEMS WITH THE MEDICAID PROGRAM IN MICHIGAN

MSMS strongly supports the goal of the Medicaid program -
to provide health care for indigent women and children. However,
because of the many serious problems with the Medicaid program in
Michigan, this laudable goal is not being achieved. MSMS refers
to this as "The False Health Care Promise of Medicaid."

I should first of all state that about 60% of my patients

290

are Medicaid beneficiaries, so I am personally aware of many of
the problems with the Medicaid program. These problems include
unconscionably low reimbursement, cumbersome regulatory
requirements and the extremely unfavorable medical liability
climate in the state. These shortcomings have created serious
access problems, particularly in the important area of primary
care. For example, in Detroit only a handful of obstetricians
and pediatricians in private practice still provide care for
Medicaid patients.

Medicaid currently pays only abut 50% of what it is
charged for physician services. As a result, the percentage of
Michigan physicians who take care of Medicaid patients has
decreased significantly over the past several years. We are
pleased by the recent increase of 15% in Medicaid physician
reimbursement that became effective on December 1, 1991.
However, despite this increase. Medicaid physician reimbursement
is still less than 70% of Medicare reimbursement and thus is not
adequate to ensure access to care for Medicaid beneficiaries.
We are also concerned that the 15% increase may be short lived.
The increase was made possible only through a voluntary
contribution program which may be prohibited after 1992. We urge
Congress to pass legislation that would allow states to continue
to use voluntary contributions to help fund Medicaid.

In addition to inadequate reimbursement, physicians who
participate in the Medicaid program encounter cumbersome
regulatory processes. Specifically, physicians billing Medicaid

291

are often faced with rejections and significant delays in
payment .

Finally, physicians in Michigan face an extremely hostile
medical liability climate. According to the geographic practice
cost index of the new Medicare resource based relative value
scale. Southeastern Michigan has the fourth highest medical
liability costs in the country. I have included with my
testimony an article by Debbie Dingell that discusses how the
medical liability problem in Michigan hurts access to care for ,
Medicaid patients. I also have included a pamphlet on medical
liability reform developed by MSMS, the Michigan Hospital
Association and the Michigan Association of Osteopathic
Physicians and Surgeons.

MSMS is also concerned regarding the elimination of
Medicaid coverage for certain optional services in Michigan. We
believe that Medicaid coverage for adult dental care, non-
ambulance medical transportation and EPSDT outreach contracts
should be restored.

PHYSICIAN SPONSOR PLAN
MSMS is encouraged, however, by the success of the
Physician Sponsor Plan (PSP) in Michigan. The PSP program is a
managed care plan that is the result of a cooperative effort
between MSMS and the state Medicaid program. Under the PSP
program, each patient selects a primary care physician who
becomes the patient's physician sponsor. Physician sponsors
agree to provide 24 hour a day access to care. The physician

292

sponsor provides all primary care and determines whether the
patient needs treatment from specialists. The physician sponsor
receives a case management fee of three dollars per month for
each enrolled recipient.

According to a recent evaluation, the PSP progreun has
succeeded in reducing costs by over 10% while providing quality
patient care. In our view, this program combines the best
features of fee for service and managed care. Currently, the PSP
program is available to Medicaid beneficiaries in Wayne County
and in two other counties. However, over the next few years the
program will be made available to all Medicaid beneficiaries
throughout Michigan. MSMS believes that other states may be
interested in adopting the PSP progrcun and we will be happy to
provide additional information concerning this program.

CONCLUSION

MSMS believes strongly that the AMA's Health Access
America proposal would ensure that all Americans are provided
access to quality, affordable health care. We look forward to
working with you to ensure that the key principles of Health
Access America are enacted as soon as possible.

I will be happy to answer any questions Members of the
Committee may have.

293

Summary of AMA Proposcri

The elements of the AMA proposed f\m may be summarized in the following 1 6 points:

1 . Increase access by enacting maior Medicaid Reform.

2. Increase access by requiring employer prxmsim of health insurance.

3. Increase access by creating state-level risk pools in all states.

4. Maintain access and reduce costs for the elderly by enacting Medicare Reform.

5. Increase access and reduce costs for the elderly by enacting necessary legislation to
finance expanded long-term care coverage.

6. Reduce health care costs through professional liability reform.

7. Maintain quality and reduce costs through development of professional practice
parameters.

8. Reduce health care costs through altering the tax treatment of employee health
care benefits.

9. Reduce costs by encouraging cost-conscious decisions by patients.

10. Reduce costs by seeking innovation in insurance underwriting.

1 1 . Maintain quality through expanded federal support for medical education, research and
the National Institutes of Health (NIH).

12. Maintain quality and reduce costs through increased health promotion and disease
prevention.

1 3. Reduce costs and increase access by amending ERISA or the federal tax code to equalize
treatment of self-insured and insurance plans.

14. Reduce costs and increase access by repealing or overriding state-mandated benefit laws.

15. Reduce costs by reducing administrative costs and paperwork.

16. Maintain quality and access through encouraging physicians to practice in accordance
with the highest ethical standards and to provide voluntary care.

Accomplishing the goal of strengthening the American healdi care system through the elements
contained in this AMA proposal will present an enormous challenge to all concerned. For its
part, die AMA intends to move forward vigorously on legislative and other fronts. The AMA
welcomes and encourages the support of others to help bring about an improved American
health care system.

294

Detroit Free Hress. January m. mi^i

A medical Kability crisis
puts Medicaid babies at risk

By Debbie Dingell

Last month, the Michigan Oepart-
ment of Public Health released
Michigan's 1989 infant mortality sta-
tistics. Contrary to the national trend,
Michigan's rate increased; there were
1,645 infant deaths in 1989, 103 more
than in 1988.

This rate is unacceptably high and
we must do something as a state to
improve the chances of the newborn
child to live.

There are numerous factors con-
tributing to the rate of infant deaths,
but one very important factor that
requires immediate anention is the
acute shortage of doctors willing to
practice obstetrics because of con-
cerns over medical malpractice and
high insurance premiums. All Michi-
gan women are affected by this short-
age, but low-income women in par-
ticular are being denied access to
important prenatal care.

The problem has been exacerbated
in recent weeks by the astounding
$ 1 9-million jury awardagainst Hutzel
Hospital in a medical malpractice
case.

At the time of that judgment, there
were only four private doctors in
Wayne County who agreed to treat
pregnant Medicaid patients. Now it
appears we will lose all of them.

That means that low-income
women may only be able to get pre-
natal care in public health clinics.
Those clinics, already overflowing
with patients, simply cannot make up
for the loss of private physicians.

Clearly, the unresolved malprac-
tice liability problem is a growing
threat to the availability and accessi-
bility of prenatal care.

According to the National Com-
mission to Prevent Infant Mortality,
obstetrical providers nationwide (in-
cluding family physicians, obstetri-
cians and certified nurse midwives)
have been affected by increases in
liability insurance rates. Physicians
are increasingly unwilling to provide
maternity services to low-income and
Medicaid patients because they fear
lawsuits and because of low reim-
bursement rates. Although low-in-
come women have higher health risks.

his crisis must
be addressed.

the widely held perception that the
poor, particularly those on Medicaid,
tend to sue more often than people in
other economic groups has not been
substantiated.

According to the American Col-
lege of Obstetricians and Gynecolo-
gists, the average cost of liability
insurance for obstetricians in 1987
was three times higher than in 1982.
During this same time, 12 percent of
ob-gyns terminated their obstetrical
practices, and many others limited
the high-risk portion of their prac-
tice.

In response to the growing threat
to the availability and accessibility of
prenatal care, states are examining
four potential solutions:

■ Supplementing liability insurance
premiums for providers of obstetri-
cal care for medically underserved
areas and medically indigent patients.

■ Assuming the fmancial risk of large
malpractice judgments against pro-
viders who treat Medicaid and indi-
gent patients.

■ Exempting firom liability health
services that are provided without
compensation or on an emergency
basis.

■ Reforming the tort liability system
by creating a no-fault approach.

Michigan legislators must recog-
nize the significant impact the short-
age of prenatal care is having on the
health of children. This crisis must be
addressed.

Women who are poor and preg-
nant face barriers to receiving the
prenatal care that can improve sig-
nificantly the health of their babies.

We need doctors to care for
Michigan'smodiersandchildren.The
state must take immediate action to
reduce the impact of liability on ac-
cess to prenatal care.

Debbie Dingell, a General Mo-
tors Co. executive, is chairwoman of
Baby Your Baby, a public -private
initiative designed to reduce infant
mortality rates.

295

Mr. DiNGELL. Mr. Hiltz and Mr. EUstein, we welcome you. Mr.
Hiltz, we recognize you.

STATEMENT OF RICHARD S. HILTZ

Mr. Hiltz. Chairman Dingell and members of the committee,
thank you for being here today and allowing us to be here and talk
with you. We appreciate your interest in the health care issues.

We have a written statement we have given you, and I would
like to give you a brief summary.

Mr. Dingell. Without objection, your full statement will appear
in the record.

Mr. Hiltz. Thank you. The Michigan program long has been rec-
ognized as having one of the best Medicaid programs in the coun-
try, at least in terms of coverage and benefits.

Yet, while groups such as Public Citizen Research in Washington
list Michigan as having one of the best Medicaid programs in the
country, they noted that was less an endorsement of Michigan than
an indictment of other States.

Michigan's program could have been described in the past as a
mile wide, but an inch deep with broad eligibility and coverage, but
limited access to many services because of the inadequate payment
rates.

As a result of legal challenges, some of those rates have now
been improved, but the State's fiscal situation, and competing soci-
etal demands, now place the benefit package and coverage at risk.

Last April, The New York Times summarized a report of the
Physician Payment Review Commission, PPRC, which found that
Michigan, at 62 percent, ranked 36th in the country in the percent
of Medicare physician payment rates — even though that rate is not
acceptable to many physicians — reimbursed by the State's Medic-
aid program. That low rate of pa5nnent, coupled with a nightmare
of paperwork requirements and other road blocks to timely pay-
ment, have served to discourage private practice physicians from
accepting new Medicare patients into their practices.

The end result is that, for many Medicaid recipients, the only
available source of primary care is the hospital emergency room or
outpatient departments. Yet, for most services, the basis for pay-
ment to the hospital is the same system of inadequate payment
screens that cause physicians to refuse to participate. The hospi-
tals' viability have been threatened by their willingness to care for
Medicaid recipients.

The lack of reasonable payment standards and excessive bureau-
cratic practices, which require constant rebilling and follow-up to
get pended claims finally paid, has resulted in limited accessibility
to services for those covered under the program, let alone for those
without any insurance.

The Health Care Financing Administration, HCFA, has not
helped the situation, either, given its continued focus on whether
the States are paying too much by exceeding the upper payment
limit, while failing to develop standards to evaluate State plan
amendments which reduce payment or impair access; both of these
concerns are reflected in the Boren amendment.

296

The ability of Michigan hospitals to make voluntary contribu-
tions to the State in support of Medicaid during the last 2 years
has been crucial to continuing the program. I would also add our
thanks to all of you for your support on that difficult issue.

While the contributions have clearly resulted in an increase in
Federal matching funds paid to the State, they have also allowed
the State to restore or avoid cuts in benefits and eligibility.

The State has also been able to marginally improve physician
and outpatient hospital payment rates. This will hopefully improve
access to primary care services, and to make additional payments
to hospitals with a disproportionate burden of indigent patients.
How the State will fill this revenue gap after the contributing pro-
gram ends is unknown at this time, but remains a major concern of
the MHA.

Some suggestions for improvement:

From a Medicaid-only perspective, there are a number of sugges-
tions we can make to improve the Medicaid program's ability to
meet its objective of providing access to low-income people. Many of
these proposals are likely to increase the cost of the program in the
short term, but should result in savings over the long term,
through improved health status and better care.

Extend the protection of the Boren amendment to clearly cover
professional and outpatient hospital services. Mandate standards
for HCFA to follow in evaluating States' plan amendments. De-
couple Medicaid eligibility from other welfare programs. Establish
fair national standards for eligibility and coverage.

Change rules to allow States to "lock in" eligibility for at least 6
months, without requiring a waiver, to facilitate enrolling Medicaid
recipients in capitated, managed care programs. Address the medi-
cal liability problem at the Federal level, to reduce State-by-State
variation in the cost of coverage.

Change the funding formula for Medicaid to make the formula
more equitable. Simplify the data reporting requirements to make
the system less costly to administer. Establish national standards
for claims submission and prompt pajrment.

System reform: While we have made a number of recommenda-
tions to reform Medicaid, the best course of action for Congress to
take is to reform the entire health care system, and to eliminate I
the need for a separate Medicaid and Medicare program. The MHA !
endorses the need for broad-based reform, including restructuring !
of the delivery system into Community Care Networks, which re- j
ceive fixed per capita premiums to provide a basic set of benefits j
for all. I

Such a plan would finally create consistent incentives for all pro- ,
viders to focus on efficiently delivered preventative care, rather |
than the current system of conflicting incentives, and the focus on
restorative care.

We stand ready to work with you on meaningful reforms and ap-
preciate the opportunity to express our views. Thank you.

[Testimony resumes on p. 311.] I
[The prepared statement and attachments of Mr. Hiltz follow:] I

297

6215 West St. Joseph Highway
Lansing, Michigan 48917
(5171323-3443

Spencer C. Johnson
President

TESTIMONY OF RICHARD S. HILTZ

Thank you, Chairman Dingell and members of the Subcommittee, for the
opportunity to appear before you today. I am Richard S. Hiltz, President of
Mercy Memorial Hospital in Monroe, Michigan, and Chairman -Elect of the Michigan
Hospital Association. With me today is Charles L. Ellstein, Group Vice-President
for Health Delivery and Finance for the MHA. We appreciate the interest this
Subcommittee has shown on the issue of health care in general, and the Medicaid
program's ability to provide access to necessary care for low income people in
this country. We are very familiar with Chairman Dingell 's interest in health
care, and look forward to the opportunity to work with him and the other members
of the Subcommittee to effectuate necessary changes in our health care system to
insure access to cost-effective, quality health care for all our citizens.

Michigan has long been recognized as having one of the "best" Medicaid
programs in the country, at least in terms of coverage and benefits. Our state
has taken advantage of most of the federal options for expanding eligibility to
vulnerable groups, and Michigan's benefit package includes most, but not all,
optional services. Yet, even while groups such as Public Citizen Research, in
Washington D.C., list Michigan as having one of the ten best Medicaid programs
in the country, they noted that was less an endorsement of the Michigan program
than an indictment of the other states.

298

Hiltz Testimony
February 28, 1992
Page two

Michigan's program could have been described in the past as a mile wide,
but an inch deep, with broad eligibility and coverage, but limited access to many
services because of Inadequate payment rates. As a result of legal challenges,
some of those rates have now been improved, but the state's fiscal situation, and
competing societal demands, now place the benefit package and coverage at risk.

PROBLEMS WITH THE MICHIGAN PROGRAM

Last April, the New York Times summarized a report of the Physician Payment
Reform Commission (PPRC), which found that Michigan, at 62 percent, ranked 36th
in the country in the percent of Medicare physician payment rates (even though
that rate is not acceptable to many physicians) reimbursed by the state's
Medicaid program. That low rate of payment, coupled with a nightmare of
paperwork requirements and other roadblocks to timely payment, have served to
discourage private practice physicians from accepting new Medicare patients into
their practices.

The end result Is that, for many Medicaid recipients, the only available
source of primary care is the hospital emergency room or outpatient departments.
Yet, for most services, the basis for payment to the hospital is the same system
of Inadequate payment screens that caused physicians to refuse to participate.
Hospitals' viability have been threatened by their willingness to care for
Medicaid recipients. The lack of reasonable payment standards and excessive
bureaucratic practices, which require constant rebilling and follow-up to get
pended claims finally paid, has resulted in limited accessibility to services for
those covered under the program, let alone for those without any insurance.

299

Hiltz Testimony
February 28, 1992
Page three

Additionally, federal requirements and restrictions limit the ability of
the state to work with providers to develop alternative approaches to providing
care to Medicaid recipients. The federal waiver policy reflects the intention
to allow innovative approaches while safeguarding the rights of recipients (but
not necessarily providers - payment standards can and are waived by HCFA), but
results in a sea of reports and inquiries that drain available resources from
patient care to administrative needs.

The existence of a minimum payment standard for hospitals and other
facility providers, however loosely defined and enforced it may be, has allowed
the MHA and other provider groups to successfully pursue their right to
reasonable payment for the services to which the standard applies.
Unfortunately, the Boren Amendment does not cover professional services, and its
applicability to hospital outpatient services is unresolved. Further, successful
legal challenges to hospital and nursing home rates have increased the cost of
the program to the state (and federal government). In the context of the current
economic downturn, it is understandable, but no more acceptable, that the
response of the state has been to cut benefits, eligibility, and provider
payments wherever possible.

The Health Care Financing Administration (HCFA) has not helped the
situation, either, given its continued focus on whether the states are paying too
much by exceeding the upper payment limit, which exists only in regulation, not
statute, while failing to develop standards to evaluate state plan amendments
which reduce payment or impair access, both of which are concerns reflected in
the Boren Amendment.

300

Hiltz Testimony
February 28, 1992
Page four

The ability of Michigan hospitals to make voluntary contributions to the
state in support of Medicaid during the last two years has been crucial to
continuing the program. I would also add our thanks to you, Mr. Dingell, and to
Mr. Upton and other members of the Subcommittee, for your support on that
difficult issue. While the contributions have clearly resulted in an increase
in federal matching funds paid to the state, they have also allowed the state to
restore or avoid cuts in benefits and eligibility. The state has also been able
to marginally improve physician and outpatient hospital payment rates, which will
hopefully improve access to primary care services, and to make additional
payments to hospitals with a disproportionate burden of indigent patients. How
the state will fill the revenue gap after the contribution program ends is
unknown at this time, but remains a major concern of the MHA.

SUGGESTIONS FOR IMPROVEMENT

From a Medicaid only perspective, there are a number of suggestions we can

make to improve the Medicaid program's ability to meet its objective of providing

access to low income people. Many of these proposals are likely to increase the

cost of the program in the short-term, but should result in savings over the

long-term, through improved health status and better care.

* Extend the protection of the Boren Amendment to clearly cover

professional and outpatient hospital services. Improved access to
mainstream primary care has to result in better quality care for
recipients.

301

Hiltz Testimony
February 28, 1992
Page five

Mandate standards for HCFA to follow in evaluating states' plan
amendments, to insure that states' assurances of meeting the Boren
Amendment requirements are based on facts, not suppositions.

De-couple Medicaid eligibility from other welfare programs. It is
time to really make Medicaid the health program for poor people, not
just for the "deserving" poor.

Establish fair national standards for eligibility and coverage, to
reduce the variability in the program across states.

Change rules to allow states to "lock-in" eligibility for at least
six months, without requiring a waiver, to facilitate enrolling
Medicaid recipients in capitated, managed care programs. Current
rules act as a barrier to capitated payment, since people without
previous coverage will use more services initially after becoming
eligible. This makes capitation a losing proposition without a
chance to smooth the use of services over an extended period of
el igibil ity.

Address the medical liability problem at the federal level, to reduce
state by state variation in the cost of coverage. Combined with more
reasonable payment, this should improve access to primary care, and
lower the cost of defensive medicine.

Change the funding formula for Medicaid to make the formula more
equitable. Consideration should be given to the federal government
taking over funding, given the previous recommendations for uniform
standards and expanded eligibility.

Simplify the data reporting requirements to make the system less
costly to administer.

Establish national standards for claims submission and prompt
payment. Providers should not have to wait for the next fiscal year
for money to become available to pay claims.

302

Hiltz Testimony
February 28, 1992
Page six

SYSTEM REFORM

While we have made a number of recommendations to reform Medicaid, the best
course of action for Congress to take, is to reform the entire health care
system, and to eliminate the need for a separate Medicaid (and Medicare) program.
The MHA endorses the need for broad-based reform, including restructuring of the
delivery system into Community Care Networks, which receive fixed per capita
premiums to provide a basic set of benefits for all. Such a plan would finally
create consistent incentives for all providers to focus on efficiently delivered,
preventative care, rather than the current system of conflicting incentives, and
the current focus on restorative care.

Such reform needs to include reforms to small group insurance arrangements,
and revisions to the tax treatment of premiums to achieve equity among employers
of all sizes. However, the MHA believes that reforms must also mandate universal
access, finally recognizing health care as a basic right for all residents, just
as is education.

We stand ready to work with you on meaningful reforms, and appreciate the
opportunity to express our views. We would be happy to answer any questions.
Thank you.

303

mioKina'n ^215 West St. Joseph Highwav

lT1IUIIiycJ/1 Lansing. Michigan 48917

hospital 323 3443

association ^'^^p;^^

FRIDAY FACTS

Policy Staff

Jane Deane Clark'^^
Jill Kneisley 5^
Nancy StruthersV^

June 21, 1991

Medicaid Physician Reimbursement

Source: "Medicaid Reimbursement Policy", State Pol icy Reports.
Vol. 9, No. 8, April 1991, pp. 6-9

State Pol icy Reports recently reported Medicaid physician reimbursement
payments, by state, for a doctor visit (for a recipient who has been seen by
the doctor before). Amounts of reimbursement ranged from $45.00 in Alaska
down to $10.00 in West Virginia. Most of the states fell within the $15.00 to
$25.00 payment range (see Table 1, below).

Table 1 ' Medicaid Reimbursement for Doctors Office Visit, 1989
Rank State Amount Rank State Amount Rank State Amount

1 Alaska

$45.00

New Mexico

$20.31

Delaware

$17.94

2 Massachusetts

41.00

Minnesota

20.00

Kentucky

17.77

3 Nevada

29.38

New Hampshire

20.00

Nebraska

17.70

4 Tennessee

27.00

Iowa

19.84

Oklahoma

17.50

5 Indiana

26.80

Utah

19.65

Missouri

17.00

6 Florida

25.00

Connecticut

19.50

Wisconsin

16.88

7 Georgia

25.00

Idaho

19.50

North Dakota

16.70

8 Kansas

25.00

Texas

19.50

Michisan

16.60^

9 Arkansas

24.75

Virginia

19.00

Mississippi

15.00

10 Colorado

24.40

Ohio

18.91

Louisiana

14.28

11 Washington

12 Alabama

22.62
22.50

28
29

Montana
Oregon

18.84
18.81

45
46

New Jersey
Illinois

14.00
12.65

13 Hawaii

22.40

California

18.40

New York

11.00

14 North Carolina

21.88

Pennsylvania

18.00

West Virginia

10.00

15 Maine

21.25

Rhode Island

18.00

Arizona

n.a

16 Maryland

21.00

South Carolina

18.00

Wyoming

n.a

17 Vermont

21.00

South Dakota

18.00

-Over-

304

The federal guideline for Medicaid payments, according to the report, is
that reimbursement should be at a level that will allow enough providers to
deliver covered services to Medicaid beneficiaries, to the extent that the
services are available to the general public in the same geographic area. In
practice, states generally set payments to providers, rather than agreeing
upon prices with providers, which can limit the number of providers available
that serve Medicaid patients. Geographic price levels and the fiscal
condition of the state are among the factors assumed to influence the level of
Medicaid payments set by states.

Another way of illustrating the variation in Medicaid physician payments
by state is to present Medicaid reimbursement as a percentage of the Medicare
reimbursement for the same service (Table 2, below). In most states,
physicians receive lower payments for treating Medicaid patients than for
treating Medicare patients. In New York, physicians who treat a Medicaid
patient receive just 30 percent of the amount they would receive for treating
a Medicare patient. Since low physician payments make it difficult for
Medicaid recipients to find a doctor, many turn to emergency rooms or other
expensive providers for treatment, or simply do not seek care. Raising
Medicaid physician reimbursements to Medicare levels would cost about $1.3
billion.

Table 2 ; Medicaid Physician Reimbursement As

Percent of Medicare

Rank State

Percent

Rank

State

Percent

Rank

State

Percent

1
2

Arkansas

120Z

Oklahoma

78Z

Maine
Michiean

622

62 .

Georgia
Alaska

112
106

19
20

Texas
Idaho

77
76

36
37

Ohio

Indiana

102

Wisconsin

Missouri

Nebraska

North Dakota

Connecticut

Massachusetts

Montana

Rhode Island

North Carolina

Virginia

California

Tennessee

Alabama

Maryland

Iowa

Florida

Pennsylvania

Utah

Vermont

Delaware

Minnesota

New Mexico

Illinois

South Dakota

Washington

New Jersey

Colorado

New Hampshire

West Virginia

South Carolina

Louisiana

New York

Hawaii

Mississippi

Arizona

n.a

Kansas

Oregon

Wyoming

n.a

Nevada

Kentucky

305

Medicaid Percent of Gross Pt. Revenue

Michigan, 1985-1989

13.5-

S 13.04-
c

S 12.5-

B 11.5-

i£ 11.0-

10.5-

1985 1986 1987 1988 1989 1990
Source: American Hospital Association Annual Survey of Hospitals

306

Medicaid Inpatient Utilization Trends

Michigan, 1985-1989

1985

1986

1987

1988

1989

Inpatient Days -a" Admissbns

Source: Michigan Hospital Assodatbn Service Corporation Interactive Data System

307

Medicaid Average Length of Stay Trends

Michigan, 1985-1989

7.0t 1

6.5--

5.5--

5.0^

Source:

19i85 1^86 iSsT liSs 1^9

Michigan Hospital Association Sen/ice Corporation Interactive Data System

308

Medicaid Inpatient Utilization Based on Expected Payer Medicaid Percent of Total Gross Revenue

Michigan Hospitals Michigan, 1 980, 1 985-1 990

Source: MHASC, Interactive Data System, 1987

Medicaid percent of gross revenue

Medicaid

Inpatient

Medicaid

Ail

Urban*

Rural**

SnBB***

Days Admissions

ALOS

hiosps

Hcsps

Hosps

Hiosps

1985

1980

11.3%

1986

968,576

156,555

1985

125%

14.1%

1987

1,056,521

181,568

5.8

1986

11.6%

11.4%

14.3%

1988

1,063,899

183,445

5.8

1987

12.0%

1Z0%

11.6%

14.5%

1989

1,130,504

194,541

5.8

1988

11.8%

11.9%

112%

13.7%

1989

11.8%

11.4%

14.3%

Normal newborns are included beginning 1 987

1990

122%

11.7%

13.0%

Medcaid Percent of Utilization Measures
Source: MHASC, Interactive Data System

M'Caid% r\^Caid%
ofTotal ofTotaJ
IP Days Admissions

1985

11.4%

1Z6%

1986

11.6%

12.7%

1987

12.4%

13.7%

1988

142%

1989

13.5%

15.1%

* Hospitals that are in a metropofitan statistical area

*• Hospftab in a nonmetropoTitan area

•** Hoiitals with <1 00 Beds, <4000 Admissions

Normal newborns are included begirvwig 1987

309

PROVIDER PARTICIPATION/ACCESS

Current Levels of Participation

Ongoing Initiatives to
Increase Participation

Any provider who is a Medicaid-
enrolled provider is auto-
matically enrolled as an SMP
provider and may bill for
covered services rendered to SMP
clients.

As of December 1991, there are
approximately
12,900 MDs
2,700 DOS

150 outpatient hospitals
enrolled in Medicaid.

The number of enrolled providers
is increasing from year to year,
however, this alone does not
constitute adequate access.

The attached map indicates the
number of active physicians
(MDs, DOS and clinics) and
outpatient hospitals
participating (that is, these
providers have submitted bills
to the Program) in each county.

Not all enrolled providers take
new patients or actively bill
Medicaid for services.

Time is required for clients,
providers, and local offices to
become knowledgeable regarding
new programs. Coverages,
eligibility, county author-
ization, and billing were
primary concerns. These
inquiries are lessening.

- A continuing provider
participation work group to
pursue Medicaid access to
services including:

. researching provider hassle
factors (e.g., unnecessary
claim documentation and
editing) ,

. reducing the number of
pending claims,

. improving systems, and

. creating more user-friendly
manuals ,

- increasing provider
reimbursement levels (e.g.,
15t increase in physician
and outpatient hospital
fees effective December 1,
1991) .

- increasing memaged care
marketing.

-7-

310

311

j Mr. DiNGELL. Thank you. Mr. EUstein, do you have any com-
I ments you would like to add?

1 Mr. Ellstein. No. I will be happy to answer any questions.

I Mr. DiNGELL. We thank you all. The Chair recognizes the gentle-

I man from Colorado.

' Mr. ScHAEFER. Thank you, Mr. Chairman. This morning we have
! been talking about how can we improve the system of providing

health care. We appreciate your statements,
j As I stated before, I am afraid we are going to start losing more
' and more doctors if we don't start to reform that system. I think

HCFA has gone overboard in a number of cases, in regards to the

forms you have to file and the T's you have to cross.
I work closely with a hospital association in Colorado. Within the

metro area we have about 12 hospitals. I have asked them many

times, why does each individual hospital have to be an all-encom-
I passing hospital that takes care of every problem?

When you start looking at the expense of the various types of

equipment a facility must have — why do we not say, OK, if you
I have a cardiac problem, out of the 12, maybe there are 3 you

should go to.

If you have another type of a problem, there is where you go, so
each individual hospital could reduce its costs by not providing all
essential elements to any person that comes in. Has this been
something you have thought about, discussed within your hospital
association in the State?

Mr. HiLTZ. It is. I came from a hospital that merged a Lutheran
hospital and Catholic hospital with a great deal of success. Would
the Federal Trade Commission allow us to do that today?

Mr. ScHAEFER. I understand. It is not something we could not
correct, if we should so desire, through legislation along this line.
You know your business better than I do, but it just seems to me
when you start talking about overhead costs and employee costs
and everything else, if you could specialize in certain areas that ev-
eryone would know it would help. If I have this problem, this is
where I go. If I have another problem, I go over here. You would
still have a competitive situation within 3 or 4 of the hospitals that
would do the same type of thing, so there would not be just one
hospital you would have to go to.

It has just been something in the back of my head. What about
the FTC? If we are looking at long-term reduction in costs, I think
that part could be worked out. I just wanted to know if this is
something that has been batted around.

I have talked to Larry Wall about this back in Colorado, and he
brought up the same possible objection — not from his point, but
from the FTC.

Mr. HiLTZ. We have a new president of the American Hospital
Association, Richard Davidson, and one of his messages is that hos-
pitals have to collaborate and not compete.

This is a major issue for our State association. It is one we recog-
nize is an industry problem. I think you are going to see the hospi-
tal industry focusing on this. But we also, as we have said, need
your help in allowing us

Mr. ScHAEFER. I fully can understand that, but you come and
say, hey, look, this is what we have put together, we would like to

312 j

do this to hold our costs down, and of course if you are the only |
hospital in Grand Junction, Colorado, that is a different story, but H
if you are in a metropolitan area, this seems to me f

Mr. HiLTZ. You have got a good point. I think you are going to I
see much more focus. f

Mr. ScHAEFER. Would managed care provide a solution to the \
problem of private physicians in Michigan not serving Medicaid pa- p
tients? jd

Mr. HiLTZ. Let me answer with an example, and maybe Mr. Ell- i|
stein can offer something more. Our local daily newspaper last |j
week announced that two of our obstetricians are quitting deliver- t
ing babies at the end of this month, end of March. p

In 1980, we had 14 physicians deliver almost 1,600 babies. Last k
year we had six physicians deliver 900 babies. We know that at |
least 400 moms had to leave our county to get prenatal and OB \
care. 5

The tragedy is that these two physicians who are quitting carry a j
disproportionate share of Medicaid and poor moms. We expect that I
that number of 400 will go to 700, and these are the people who ]
can't afford to have inadequate prenatal care. We have got to do
something about medical liability in this country.

Mr. Ellstein. Managed care by itself is not going to do anything
to provide care to the Medicaid population. If you combine it with
reasonable payment levels and with changes to the legal environ-
ment within which health care is provided, then it should go a long
way towards providing cost effective care to the Medicaid popula-
tion. [

One of the things I learned in my master's program course work j
is that one of the single best things you can do in order to improve j
the quality of care is to let all the providers providing care to an j
individual let each other know what they are doing. j

Managed care provides a vehicle within which all the care can be I
coordinated, but by itself it is not going to solve the problem. We j
have to have more collaboration among all the providers in the
health care delivery system. '

Following up on your previous question, I might note it was ex- }
actly 1 month ago today, Mr. Dingell, that you and I had a lengthy '
discussion about the implications of antitrust in health care and [
the need to follow up on ways to allow more collaboration. j

Subsequent to that conversation, I have had discussion with the |
people in the Washington office of the American Hospital Associa- ,
tion and have urged them to move quickly to identify the specific :
barriers that antitrust and Federal Trade Commission present in i
allowing greater collaboration so we can work with the Congress to i
find ways to address those problems.

Mr. Adamany. To comment, if I may, on your question on man-
aged care, the problem is pretty much of a dollars and cents prob-
lem. If the average obstetrician delivers 150 or so babies a year,
and if the premiums in the City of Detroit are about $80,000 a
year — I forgot the calculation, but you can do it while I am talking.

The calculation has been that if you take into account the gener-
al overhead, the general overhead of any physician's practice,
except for some of the ones that have very, very high premiums, is
about 50 percent, you figure 50 percent overhead — ^by and large.

313

the physician with a high percentage of Medicaid patients paying
these kinds of premiums loses money per delivery. You can't make
it up on volume.

So what a managed care program does is simply spread these
premiums so that the premiums are being paid on behalf of the
high-risk specialists and the primary care people by the system, if
it is a staff model system, so that the patients then get averaged
out.

Also, the earnings of the high-risk people and the lower-paid
people get averaged out. And with a little bit of luck, they might be
able to make it financially. However, another way of doing it is re-
adjusting the payment system. And remember, we haven't seen
what will happen to the resource based relative value scale.

That is not just a Medicare phenomenon. That will be started in
Medicaid in Michigan on April 1. There has been a specific decision
made to allocate more money to cover obstetrical cases, a dispro-
portionate amount of money not just going on to the RVRVS, but
adding to because of the professional liability problems of OB/
GYN, and with adjustments in the payment and with professional
liability relief, you ought to be able to change that ratio to make it
possible for private physicians to continue to take care of these pa-
tients, which I would submit would be optimal. I think there is
room for both.

Mr. ScHAEFER. Doctor, earlier today I made the case that I had
just been in and had a physical exam with my doctor. Of course
when Members of Congress come in to their private physicians, you
get an earful of the problems, and the doctor's wife is a nurse
there. And she gave me the form that has to be filled out, created,
I believe, by HCFA. They noted that if there is any kind of an
error on it, it will take you forever to get it back, and you are in
danger of committing a felony.

She showed me the list of the charges of what they can charge
under the system versus what they would charge to me or some-
body else who has their own insurance. It was drastically lower.

I have repeated many times, and I hate to keep repeating, but I
am afraid we are going to continue to lose doctors to take care of
Medicaid patients. She said we have some of our patients coming
in, knowing the difference, wanting to pay in cash the difference,
of course, which they cannot take.

They want this care. They want this doctor, but the doctor can't
afford to do it. Now, that is a major problem that has to be recti-
fied.

One other question, Mr. Chairman, how would the changes in
the HCFA waiver process help the State to work to develop alter-
native approaches like Mr. McNamara's, in Wayne County?

Mr. HiLTz. I think if HCFA could give us some encouragement
and incentives and flexibility, it would go a long way. With that,
Charles, why don't you respond?

Mr. Ellstein. The MHA has a task force on Medicaid reform
that has been working with the State for a year now, trying to
identify ways that we can change the delivery of the care of the
Medicaid population to make it more cost effective and more effi-
cient.

314

One of the things I have learned from talking to my friends in i
Medicaid, including Dr. Smith, is that even when the State has I
given a waiver to run a program in a particular county, every time [
it wants to expand that program to the next county, they have to |
apply for another waiver. That is ludicrous. ,

Mr. ScHAEFER. It is almost like every time a Medicaid patient '
comes to the doctor, they have to make over the form again. !

Back in the middle 1980's, the State of Colorado's, legislature '
passed what I think is one of the best tort reforms in the States, ,
when it comes to the ability for malpractice suits to exist. It put a '
cap on what you can go after. I

I yield back, Mr. Chairman. i

Mr. DiNGELL. The time of the gentleman has expired.

Mr. Upton? I

Mr. Upton. Thank you, Mr. Chairman.

I appreciate the panel's testimony. More important, I appreciate ,
your hard work in the past as well. |

Mr. Hiltz, you indicated in your testimony that you wanted to .
reform the entire health system. I couldn't agree with you more. In
my view, and I think many of my colleagues share this thought, we
ought to blow up the whole system, blow it up, and start over, and
put Humpty-Dumpty back together again, starting from square
one.

The other day, I was curious to see how many health care bills
have been introduced in the House. We have a program in our
office computer that pulls this up — and it pulled up more than
1,200 bills. Then I typed in, Upton and health, and I had four i
pages, some 50 different bills that I have cosponsored, all involving |
some change with the system that we have. i

As I look at a lot of the different health plans. Dr. Adelman — I |
appreciate your testimony with regard to health access, but as I
look at the plans, none of them are perfect. There are good things
and shortcomings as well in every plan.

One of the things I would like you to focus on this afternoon is
the president's plan, which came out during our last recess, and
didn't get a lot of favorable attention. But it had some things in
there that I thought were important.

The vouchers, they are up to $3,750, that will take the savings up
to the earner of $80,000 a year. It had some unspecified tort
reform. Eliminated preexisting conditions after 6 months.

I can tell you, I know so many small business people who want to
provide health insurance to their employees, who may have some
preexisting condition, and they are out in the cold in terms of what
may happen to them.

We talked a little bit earlier about deductibility for small busi-
nesses, how they are discriminated against because they only get
25 percent off rather than 100 percent. Medical IRA's, you talked a
little bit about that. Someone in my office talked about that. I sup-
port that, pooling businesses together to look into the savings costs.

Obviously, I focused some of my questions, with the previous
panel, on administrative costs which are a real nightmare. In
terms of dollars to the patient, a real mess.

! What are some of your thoughts regarding specifics of the admin-
I istration plan? What elements do you like from what you have
I seen, what don't you like?

Mr. Adamany. I think the tax credits are

Mr. Upton. It is actually a voucher, it is not a credit.
I Mr. Adamany. It may have many of the characteristics of a
i credit. You think this is probably a good idea. The amount of
I money, however, being proposed does not look adequate.
I When we look at the cost of health insurance per person or per
! family, this just doesn't look like it would touch it. So if it were for
a more adequate amount of money, I think it would function in an
entirely different way from the way it would function now.

In the AMA's health access project, we talk about a basic benefit
package. If you cost out the basic benefit package, I am not sure
the amounts of money being proposed by the President would even
I cover a basic benefit package. If the vouchers were for more so that
I there were discretionary amounts of money, as we talked about
I earlier, that would be in a health IRA, that would allow the pa-
I tient to make economic decisions with the incentive of having some
money that might come back to them at the end of the year, then
it might work in a way which would actually help to keep down
health care costs.

I was recently in Australia, and in Australia it is very interest-
ing what they do. They simply deduct I think it is $150 every 2
I weeks from payroll, and they just give that. That is the money that
has to be paid for health care. They pay that to the government for
i health care of the everybody who is not employed or is on welfare.
Their welfare is quite generous, and they deduct $150 a week from
the welfare payment, and that goes to medical care.

What the Australians told me is, you get Medicaid for that, but if
you have my money, you have to pay private insurance on top.
That is the way their system works. It is simple, logical, but obvi-
ously it is not a one-tiered system, which is what many of us have
tried to say is our objective. And I don't know if it is realistic or
not, but I think the problem — probably the big objection to the
president's proposal is not necessarily the ideas in the proposal, but
it probably doesn't go far enough.

Obviously, we all know that the financing is floating around. But
the amount of money that he is asking the tax credits or vouchers
to cover just don't look adequate.
Mr. Upton. So that would be the biggest shortfall that you see?
Mr. Adamany. Yes.

Mr. Upton. Do you like the other elements?

Mr. Adamany. There is a lot that is good in it. Yes, I think that
the professional liability part is good. I don't think we have a lot of
other specific objections, except that it doesn't go far enough in de-
veloping that financing problem, it doesn't go far enough at all in
discussing where the money could come from.

I really think I have got to discuss where the money would come
from. In the various European health care systems, these are usu-
ally payroll taxes. Now, payroll taxes don't have to necessarily fi-
nance a one-payer system like the Canadian health care system.
You can do a lot of things with payroll taxes.

316

The advantage of payroll taxes is they spread the base of financ- j
ing as widely as possible, they spread it like Social Security does. ;
You can take the payroll taxes and put them in IRA's if you want i
to, or you can have them go to support whatever you want. Senator I
Kerrey's bill has something which looks like State sickness funds, i
which looks like the German sickness fund. The Germans have dif-
ferent financing for both systems.

Payroll taxes may turn out to be one of the equitable forms of
financing. But you have got to answer that question, and I believe
that you have got to sooner or later give up the fantasy that you
are going to cover the costs by eliminating all fraud and eliminat-
ing administrative waste and you are going to magically cover ev-
erything, because I just don't think that you are going to get that \
much more efficiency when you federalize something. j

Mr. ScHAEFER. Doctor, what about value-added tax? '

Mr. Adamany. Well, you know, economically, the objection to a '
VAT is that it is harder on the poor. The burden falls on the poor. 1
That is why people tend to have problems with it. '

Where you need VAT's is where you don't have the ability to col-
lect income taxes. One of the advantages to taking the money out
of the income is that you cause everybody to report their income, i
For instance, if you put the tax on the income and then they '
appear and say they are uninsured, they appear at the emergency
room, they say they don't have any insurance, we say, why, it
turns out they didn't file any income tax. And you probably could
flush out a good deal of the underground economy that way and |
finance part of your health care system. i

Mr. Upton. Not all. |

Mr. Adamany. Not all.

Mr. ScHAEFER. You could flush it out of the VAT tax, too, be- !
cause they buy a lot of things. I

Mr. HiLTZ. While we are talking about the specifics of the Presi- 1 1
dent's plan, I would like to offer a personal view of the process, j'
You challenge us, the industry, to come back with ideas and pro- j
posals and suggestions. Maybe I am naive, but I have been really jl
impressed with the State of Oregon and the fact that they have got
providers, employers to talk about meaningful reform to improve
the system.

They had to make a couple of attempts at it, but they finally
took it to their people in meetings, and the people, after modifica-
tion, endorsed it and said, yes, we would even be willing to pay
more taxes if we thought the system was meaningful and we got
value for our money.

Don't shoot at them for the process. Help them make it better, i
and maybe let them try it. I have not seen anybody take as broad
an approach in trying to reform a system in health care as they
have. And I think they have been conscientious about it. Maybe
there are flaws, but, boy, they have done a super job at trying to
get everybody involved.

Mr. Upton. I appreciate your comments. One of the things where
I think there is a shortcoming in the administration plan is with
lack of catastrophic coverage. I can say for myself, when I voted for
catastrophic health, I also voted to repeal it a couple of years later, !
and there were a bunch of nay-sayers across this land, as I would

317

go back to our district and elsewhere, who flooded the rooms, the
town meeting halls, my mail. I have had more mail to repeal that
than any issue still, 6 years later. The count was about 2,000 in
favor to 5 against. Less than five people asked that that program
stay.

And what happened was, all these different supposed — I should
say "all" — some supposed interest groups were out there who
scared the willies out of our constituents. And unfortunately, later
on, we tried to make it voluntary so that people could sharpen
their own pencil, and calculate how it would impact their own
household, sit down and try to figure that out, and they would
allow them to opt out one time, and never opt back in, to try and
keep that program there. But we were unable to make that plan on
the Floor.

Many of us voted for it, and it passed overwhelmingly that year.
Two years later, it passed overwhelmingly again to repeal it. One
of the reasons why I think this committee is taking time, careful
time, is because we want to make sure we have the opinions of
groups like yours, as we blow up this system and put it back to-
gether.

I appreciate your testimony and I look forward to working with
you down the road.

Mr. HiLTZ. On catastrophic coverage, our population is getting
older. We are keeping people alive longer. At some point in time,
we are going to have to access long-term care.

Mr. Lpton. Thank you, Mr. Chairman.

Mr. DiNGELL. The Chair thanks the gentleman.

The gentleman from Michigan, Mr. Conyers.

Mr. Conyers. Mr. Chairman, I have listened to the testimony
with great interest, and I commend the witnesses. I don't have any
questions at this time.

Mr. DiNGELL. The Chair thanks the gentleman.

Mr. Hiltz and Mr. EUstein, I remember discussions earlier here,
particularly on the subject of antitrust. I would like to come
around again to a matter which I think was touched on in our ear-
lier discussions — ^voluntary contributions. I gather you are a strong
supporter of that?

Mr. Hiltz. Absolutely.

Mr. DiNGELL. Not because of the strong merit of that particular
proposal, but simply because it makes the government pay a fair
percentage of the hospitalization costs; is that correct?

Mr. Hiltz. Our State is in difficulty, as you are well aware. This
is one method we can help participate to help the State improve
benefits and cover more costs.

Mr. DiNGELL. Dr. Adelman, do you have the same feeling?

Mr. Adamany. Unless you can come up with a better idea. But if
you can't come up with a better idea, we would die without it.

Mr. Ellstein. If I could put a different cast on it, the MHA has
always opposed the idea of asking providers to pay for Medicaid. In
this State, in this economy, the alternative is so much worse that
we had no choice.

Mr. DiNGELL. I think the whole idea is basically a sorry one, but
it was done by the States because they had no alternative. And it
was supported by the professions and by the hospital people, simply

58-688 O - 92 - 11

318

because there was no accessible alternative. It was either that or |
see the government shirk its responsibility for Medicaid. I

Mr. Upton. If I may ask the gentleman, I might remind you as 1
well that it was the Reagan administration who came up with the '
idea to get away from raising taxes. |

Mr. DiNGELL. It didn't take long for them to repudiate it, but the \
gentleman is correct. I am not critical of the Reagan administra- 1
tion at this particular point. I would simply use this as a prefatory |
statement to indicate that at the end of this year, the voluntary
contribution system is going to terminate. And the people sitting
up here did the best they could to get this extended over the rather
vigorous objections of the administration.

Can you give me some examples of the services and benefits the i
contributions have helped bring about? What would have been ter- I
minated had we not had the voluntary program? I

Mr. Ellstein. I think the first direct program that was saved j
was the Medicaid program itself. There was talk a year ago about I
the State of Michigan terminating its Medicaid program because 1
there just wasn't going to be enough money to fund it through the
end of the fiscal year. So there was serious discussion about wheth- |
er we were going to have to terminate the Medicaid program part
way through the year. I

The existence of the voluntary contribution program allowed I
enough money to come into the program that some hospitals with I
disproportionate Medicaid loads helped out with some additional |
payments. The program was kept in place. The State was able to j
restore a 20 percent reduction in physician payment rates, which |
was implemented last April 1st. That was restored partially j
through the voluntary contribution program. '

We have been able to increase physician and outpatient hospital [
payments by about 15 percent, as of last December 1st, hopefully to j|
encourage more physicians to treat Medicaid patients and to |
reduce the losses that hospitals incur in filling the gap. i

We were able to avoid the elimination of several of the optional !
coverages, and I think that you could also indicate that the propos- ,
al to restore adult dental coverage is probably this year at least
partially due to the existence of 1 more year of the voluntary con-
tribution program. j

There is no doubt in my mind that the Medicaid population is
receiving significantly more service because of the contribution
plan than they would have otherwise. I am frightened to death of
what happens when the plan ends. We are going to be able to
repeat our plan one more time in the fall of this year for fiscal
year 1993, and after that, I don't know what is going to happen.
The conditions under which provider taxes are allowed will make it
very difficult to put through those kinds of taxes, which are really
taxing providers and people who are getting health care to pay for
Medicaid rather than spreading the burden equitably among all
citizens.

I am very concerned about what we are going to do to fill the |
gap, unless we see a very significant improvement in the economy
far beyond anything that Michigan has ever experienced before.

319

Mr. DiNGELL. I have a curiosity as to what happens to these pro-
grams if this program expires. What then transpires? Do these pro-
grams terminate?

I am sorry, Dr. Adamany, I should ask you that.

Mr. Adamany. Let me just make one comment. I think the hospi-
tal association can probably give you a broader ranging comment,
but to jump in with one point on the physicians side, the 15 per-
cent increase in the physician payment should be looked at with a
little bit of sophistication, because what actually happens, two
things at the same time. One is, 15 percent more money was put
into the physician line of payment as a result of the voluntary pro-
gram. And the Medicaid program also adopted the RVRVS.

The RVRVS, as you know, shifts incentives by paying relatively
more for primary care in order to shift physicians into primary
care and paying relatively less for tertiary services. There was also
a specific decision made to allocate a fixed amount of additional
money to try to bring OB/GYN payments up to speed.

Now, moving on to the RVRVS meant tremendous allocations in
the previous payment in what was previously paid, for Medicaid
just as it did for Medicare. You all know the difficulties that sur-
geons are finding with the RVRVS, because the surgeons are the
losers and the primary care people are the winners.

Going in Michigan to the RVRVS, with the amount of money
available to pay physicians, meant that a decision had to be made,
obviously there was no way that they could pay at the level of
Medicare, so the decision was initially made to pay at the level of
70 percent of Medicare, but pay on the RVRVS.

Now, when we took our first look at that, that meant that we
were going to in many instances have lower payments for Medicaid
after the 15 percent increase, than we had before. Now, physicians
were being paid somewhere in the range of the 30 percent of
charges by Medicaid. I was just told by an orthopedic surgeon that
they are actually being paid between 1 and 30 percent of charges.

Ms. Adelman. I think for pediatric surgeons it was probably mid-
30 — about 33, 35 percent of charges or thereabouts. Payments for
all of my procedures were going to go down with this 15 percent
increase. Now, we immediately saw that this was going to really
deprive patients of access to a great deal of tertiary care, because
physicians have been on the line. They have been borderline about
to drop Medicaid. All the physicians that have been on Medicaid
are simply there on dedication, not because they make money. Phy-
sicians have all said I will hang on a little longer, maybe some-
thing will improve, if not, I will drop Medicaid.

Without their 15 percent increase, which is what would go if you
lost the voluntary contribution, there is a real question how the
tertiary hospitals, the medical center, Detroit Medical Center, and
the physicians who provide tertiary care would be able to take care
of Medicaid patients. Real serious question.

Mr. DiNGELL. This promotes a comment that probably you ought
to have in mind. The program expires the last day of this year. The
election is early in November. There will be no post-election session
for Congress. I would suggest that the crisis is postponed by the en-
actment of this legislation until after the election. I would suggest
if the hospital association and medical association want that ad-

320

dressed, they should trigger a crisis before, rather than after the j
election. I leave that thought in your mind.
Mr. Hiltz? I
Mr. Hiltz. If you live in Epsilon or Flint, Michigan, we are in a I
crisis. I think in Monroe we have a pretty good school system. Last j
fall, during midterms they arranged parent-teacher conferences, so
they had all the teachers in the gym, and they scheduled the ses-
sions during the day and at night. Less than 30 percent of the par-
ents showed up to get involved in the quality of education for the j
kids.

In this country, one State stands out as doing a pretty super job
with education and in high values for medical care and quality of
life. It is the State of Utah. The State of Utah is dominated by a
church that holds family to be of critical importance.

Can our country continue to prosper and recover if we don't get
some of those values back? It invades health care, it controls educa- |
tion, and that is what we are all about. We have got to do some- I
thing. We have to decide which direction we are going to go. Look
at Utah. Why are they so good? It is because of the values they '
have. Healthy women, emphasis on education, emphasis on family. ,

Mr. DiNGELL. Doctor, do you have any further comments? I

Ms. Adelman. Primary comment is that we in medicine are vi-
tally interested in working with you on this problem. I don't think
we have said everything we know today. We do know more. We
have a great deal more written out. We have a great deal of elabo-
ration on the material we have prepared. The AMA has several |
councils and work groups and would have you working on many I
areas that are not flushed out. |

The cost containment area needs more work, catastrophic needs i
more work, long-term needs more work in our proposals. We are !
extremely interested in being supportive of your work and working i
with you. 1

Mr. DiNGELL. Thank you.

Mr. Ellstein? Mr. Hiltz? \
Mr. Hiltz. I would echo Dr. Adelman. We are all interested in i

working with you.
Mr. Ellstein. Particularly the Michigan members of the commit- '

tee know where to find me. You found me before. And I do know I ,

found your offices as well. We look forward to continuing the

debate.

I think the one thing, having sat here all day, the one thing that
has been demonstrated clearly is that the system is broken. We
have heard endless evidence that the system is broken. It is time to
move beyond trying to determine whether the system is broken. It
is time to start moving into the discussion of how we are going to
fix it.

Mr. DiNGELL. Unfortunately you are right.

Doctor, Mr. Hiltz, Mr. Ellstein, the committee thanks you. The
Chair notes this completes our panels of witnesses. The Chair
wants to express my thanks, first to my colleagues for their pa-
tience and their diligence and attendance. Second, to all our wit-
nesses for all their fine testimony; third, for the others who have
participated and who have sat with us through the day observing
what has been going on here.

321

Last of all, I wanted to say a word of thanks to the staff, the staff
of the subcommittee, the full committee, but also the minority
staff. I want the minority staff to know their cooperation in this
has been noted by the Chair and is very much appreciated. It is a
good example of not only the committee functioning but also the
staff of the committee functioning. I think we are well-served by
people of this quality. I am particularly appreciative.

I would recognize any of my colleagues for a concluding state-
ment, if they would like to make one at this time.

Mr. CoNYERS. Thank you, Mr. Chairman. I am privileged to be
able to join you on this very important subject. As you know. Gov-
ernment Operations, which I Chair, is working on it, too, and I
have John Gorman and Ray Plowden from my staff who have
worked very hard, too. I only wish my ranking minority member
was here to see how you praised the minority and their staff be-
cause we have the House Administration budget coming up, and if
we aren't in agreement, we may not get any bucks for Government
Operations. So you set an enormously good example for the other
Chairman to follow.

Mr. DiNGELL. I would answer that by saying we have a commit-
tee which has strong views. The Democrats and Republicans both
have strong views which are not always in conformity one with the
other, and we occasionally have vigorous interactions, but we work
very hard.

I should make one observation. As Chair, I inquire of the minori-
ty what it is they want, and I present it in full to the House Ad-
ministration Committee without any change. That will be my prac-
tice. That will continue to be my practice.

I wanted to thank Mr. Schaefer, who I know comes from far
away from us, and Mr. Upton, who is of this State. Both of whom
are of enormous value to this committee.

Mr. Schaefer?

Mr. Schaefer. I thank you for the opportunity to be here. I prob-
ably learned more about this situation than I care to know. I don't
think anybody has any answers yet. Therefore, this was very in-
formative. It was well set up. Information came from a number of
different sources.

As I indicated last April, I had the first health conference in Col-
orado we ever had, bringing in all groups, trying to come up with
possible solutions. I thank you for your leadership on this and rec-
ognize we do have a tremendous problem here, and as my col-
league, also from Michigan said, it is time to blow this one up and
start over again.

Thank you very much.

Mr. DiNGELL. Mr. Upton?

Mr. Upton. I would like to say one brief thing. I, too, commend
the staffs on both sides of the aisle. It has been very clear from the
onset, certainly since I have been on the committee, there is great
harmony between both sides. I appreciate the cordial hard work so
many people put in.

The other thing I would like to say, I again congratulate you on
having a very good hearing back here. I have said so many times,
the Congress may be criticized for factfinding missions in various
places of the world, and I appreciate, certainly, Mr. Schaefer's at-

322

tendance — all day attendance here — to bring home the problems of
Michigan to the entire Congress. Whether it was the hearing today
or whether it was your leadership last spring where nearly 10 per-
cent of the Congress came to the Detroit area to study the prob-
lems of the automobile industry, many of them with a health-relat-
ed focus, I think is certainly very commendable and helps us get
the job done right when we go back and begin to work on legisla-
tion.

I thank you again.

Mr. DiNGELL. The Chair thanks the ge^itleman.
The committee will stand adjourned until the call of the Chair.
[Whereupon, at 4:25 p.m., the hearing was adjourned, to recon-
vene at the call of the Chair.]

MEDICAID PROGRAM INVESTIGATION

THURSDAY, MARCH 26, 1992

House of Representatives,
Committee on Energy and Commerce,
Subcommittee on Oversight and Investigations,

Washington, DC.

The subcommittee met, pursuant to notice, at 10:03 a.m., in room
2322, Rayburn House Office Building, Hon. John D. Dingell (chair-
man) presiding.

Mr. Dingell. The subcommittee will come to order.

The Chair has a lengthy opening statement which will not be
read in view of the time constraints. This is what I view as a very
important hearing today, looking into the overall question of how
our health care system works, with very specific emphasis on Med-
icaid and how it is working in the midst of a huge increase in
health care costs, how much of the health care costs this program
is meeting, how well the American people are going to be served,
and whether the system is going to provide the needs and the ne-
cessities of this country in the area of health care as we move into
the first decade of the 21st century.

The Chair wants to just say that I am particularly pleased to
have an old friend before the committee today. I will conclude my
remarks after I have recognized Mr. Bilirakis for the purposes of
introducing our first witness and I know he will do so with the
same enthusiasm and warmth and good feeling that I feel towards
the Governor.

[The opening statement of Chairman Dingell follows:]

Opening Statement of Hon. John D. Dingell

Over the course of the last year, the subcommittee has been conducting investiga-
tions into how our health care system works, who benefits from it and who loses,
and why it is pushing us to the financial brink while our public health deteriorates
and many more are going without health care. We repeatedly have heard the con-
sistent message from physicians, hospital administrators, public health experts, pa-
tients and government officials that we have a system in crisis. The subcommittee
has focused much of its attention on the Medicaid program because it was created to
help our most vulnerable people — the poor, disabled and the elderly. And we fo-
cused on it because it appears to be at the most immediate risk of breaking apart
and taking countless people and States down with it.

Unfortunately, we have also found that Medicaid's problems mirror those of our
entire health care delivery system. Those problems reflect the unchecked growth of
a $700 billion plus medical-industrial complex that is crippling our economy and
shortchanging our citizens. It is truly shocking that nearly 40,000 of our children die
each year — and that they are dying in a country that leads the world in medical
technology and scientific research. While infant mortality is only one indication of
the success of a health care system, it is a particularly sad testament of a system's
failures.

(323)

324

Each morning, our televisions, newspapers and radios greet us with bleak news —
nearly 20 percent of our children are living in poverty, 48 million Americans are
going without health insurance, AIDS cases are projected to triple in the District of
Columbia by 1996, and cases of dangerous, drug-resistant strains of tuberculosis are
spreading across the country. Yet, we still cannot reach consensus on a coherent
health care policy. We cannot afford to allow partisan politics and parochial inter-
ests to dictate what we do on this issue of critical importance to all Americans.

Today, we are fortunate to have with us Governor Lawton Chiles of the State of
Florida. The Governor has long been in the forefront, both in his years in the U.S.
Senate and in the State Capitol, trying to develop public health policies to help all
of our citizens. I am particularly pleased to have him with us because Governor
Chiles recently has succeeded in getting bipartisan support for major health care
reform initiatives in his State. While the Governor has modestly suggested that
Florida simply did not have the luxury of waiting any longer, his State is still
unique in its courage in confronting these difficult problems. Let me take a moment
to outline a few of the factors that the Florida legislators and the Governor faced:

— Florida has the highest percentage of elderly people, with their corresponding
health needs, of any State in the country;

— The State has 2 million citizens living below the poverty line;

— Nearly 23 percent of Florida's non-elderly people do not have insurance, with a
full 75 percent of those being workers and their dependents;

— Ninety-five percent of Florida's businesses employ fewer than 25 people;

— Florida has the second highest unemployment rate in the Nation; and, finally,

— Health insurance premiums increased 234 percent from 1980 to 1990.

We look forward to Governor Chiles' testimony and particularly appreciate his
being with us today.

We are fortunate to have with us, as well, Ms. Rae Grad, the Executive Director
of the National Commission to Prevent Infant Mortality. This Commission has made
invaluable contributions over the years to the fight to save our most vulnerable citi-
zens.

Ms. Grad will give us the alarming results of the Commission's newest analysis of
trends in infant mortality and low birthweight babies. Her work and that of the
Commission is essential to our understanding why the system is breaking down and
what can and must be done to fix it.

I also want to commend my good friend and colleague from Georgia, Dr. Rowland,
for his work on these important matters. Dr. Rowland is Vice Chairman of the Com-
mission and he also sits on the President's Commission on AIDS. His insight on
these crucial issues will be invaluable in our hearing today and as we move forward
with our work.

Finally, today we will hear from Mr. Michael Mangano, the Deputy Inspector
General for the Department of Health and Human Services. Following the subcom-
mittee's first hearing in June of last year, the Inspector General was requested to
conduct additional investigations for the subcommittee. That work has been com-
pleted and Mr. Mangano will report to the subcommittee on those findings. Specifi-
cally, the Inspector General evaluated the economic and public health consequences
of patients going to emergency rooms across the country for primary health care.
He also reviewed how managed care affected both the quality of care and cost of
health care for Medicaid patients. And finally, the Inspector General assessed the
extent and nature of the "hassle factor" — the paperwork and logistical nightmare
that many physicians claim is one of the primary reasons they will not take Medic-
aid patients.

We are pleased to have all of you with us today. I believe that the record that you
are helping the subcommittee build will be of critical importance in our efforts to
respond to the health care crisis.

INTRODUCTORY REMARKS OF HON. MICHAEL BILIRAKIS, A
REPRESENTATIVE IN CONGRESS FROM THE STATE OF FLORIDA

Mr. BiLiRAKis. Thank you, Mr. Chairman, and good morning.

As a former member of this subcommittee, Mr. Chairman, and I
do miss working with this subcommittee I might add, as a Floridi-
an and as a Gator I truly appreciate the opportunity to introduce
to you the Governor of the Sunshine State, Governor Lawton
Chiles.

325

Governor Chiles has served the people of Florida for 33 years.
After serving in the State House and Senate, he was elected to the
U.S. Senate in 1970. He became the first Floridian to chair a major
Senate committee, the Budget Committee, and for years fought for
budgetary discipline, but Lawton's determination to rein in Federal
spending, Mr. Chairman, did not restrict his vision. He recognized
years ago that too many children in the United States did not live
to celebrate their first birthdays and that even more tragic, most
infant deaths were preventable.

Governor Chiles was instrumental in founding the National Com-
mission to prevent infant mortality and has served as its chairman
ever since. Mr. Chairman, as we might imagine, few individuals
who will ever testify before this subcommittee can speak with the
authority on the subject of infant mortality as our Governor,
Lawton Chiles.

I support the Medicaid program. I know that we all do and we all
want to preserve it. However, Federal regulations and mandates
placed on the Medicaid program by Congress have created serious
difficulties for most States, Mr. Chairman, and I know we are going
to hear more about that here this morning. I honestly do not be-
lieve it is the intent of Congress to put States in this position. How-
ever, that has been the outcome in many States.

Getting back to the subject of infant mortality, Mr. Chairman,
the Governor and I share the dismal infant mortality rates of our
Nation especially in the southern region. Since 1989 I have served
as the co-chairman of the Congressional Sun Belt Caucus Task
Force on Infant Mortality with my good friend Roy Rowland, who
has just come in.

The Task Force is quite active because we are deeply concerned.
The Sun Belt region has the highest infant mortality rate, I am
ashamed to say, of any area of the country. In my Congressional
district the news is more encouraging, as the Governor knows.
There has been a noticeable reduction in infant mortality rates for
Pasco County, for instance, since the mid-1980's. Nutrition pro-
grams which most of us strongly support can make a significant
difference in the lives of so many.

I am proud to say the Pasco County program goes that extra
mile and while providing nutritional services, the staff takes a per-
sonal interest in every client. I have visited those facilities, some of
those facilities. Governor, and I have seen actually the personal in-
terest that they take. It's just a wonderful thing to see.

Providing pregnant women with adequate prenatal care is an-
other proven method which lowers infant mortality statistics. Un-
fortunately, skyrocketing medical malpractice insurance premiums
have led many obstetric providers to refuse to accept Medicaid re-
cipients as patients or refuse to accept new patients altogether.

Last year I introduced the Access to Obstetric Care Act of 1991
in an effort to encourage more health care professionals to provide
services to all pregnant women. This bill would allocate funds for
Medicaid demonstration projects at the State level to enable States
to design initiatives tailored to meet the exact needs of their resi-
dents.

326

Mr. Chairman, there are many other aspects of the Medicaid pro-
gram which I am deeply interested in, particularly preventative
health care for all ages, and also long-term care.

Health care reform is necessary in this country and all of us
have different ideas on how to resolve this very serious matter and
I guess that is part of the problem — ^we all have different ideas.

The Governor and I both believe that every American has the
right to health care access. I am certain the Governor will be able
to provide this subcommittee with valuable insights on the Medic-
aid program, on infant mortality and health care access issues.

I am pleased, Mr. Chairman, to introduce to the committee our
Governor, Lawton Chiles, and am further pleased to see your inter-
est and the committee's interest in the Medicaid program and
would be more than willing to work with you on these very impor-
tant issues.

I am pleased to introduce to the committee Governor Lawton
Chiles.

Mr. DiNGELL. Governor, before we recognize you, our good friend
Mr. Rowland is here and I know he would like to have something
to say at this particular time.

Mr. Rowland. Well, what a pleasure to see you. Governor Chiles.
I am really pleased that you are here. I don't believe there is
anyone in this country that would be more familiar with the prob-
lems that confront us today in the Medicaid programs and in teen-
age pregnancy than you. You have been here at the Federal level.
You are at the State level now and I believe that your understand-
ing of the problem will shed a great deal of light on what we need
to do.

It is certainly a conundrum to know how to deal with this prob-
lem with the increasing number of teenage and adolescent preg-
nancies that we have. We continue to have one of the poorest
infant mortality rates in the world and the fact is that my own
State of Georgia is the worst State in this country with reference to
infant mortality, 40 percent of the deliveries in my State of Geor-
gia is in the Medicaid program. I have not voted for any expansion
or supported any expansion of Medicaid without talking to the
people back in my home State about this.

We have a propensity here in Congress to put burdens on the
States or create or expand programs that in many instances just
don't work. They don't do what they are intended to do. I am so
pleased to see you here today, and I look forward with great antici-
pation to what you have to say.

Thank you.

Thank you, Mr. Chairman.

Mr. DiNGELL. I just want to add to you. Governor, that as a per-
sonal friend of yours and as an admirer of yours for a long time, as
one who served with you while you served your State with distinc-
tion in the Senate and one who has worked with you and under
your leadership on the problems of health and young people and
infants, and recalling all of the wonderful things that you have
done, I want to tell you that it is a particular honor and a pleasure
for this committee to have you before us to testify.

327

There are a couple of minor things. We have precedents in this
place, as you very well know. The first is that we receive all testi-
mony under oath.

Would you have any objection to being sworn?

Governor Chiles. No, sir.

[Witness sworn.]

Mr. DiNGELL. Governor, welcome to you. You may proceed in any
fashion you choose.

TESTIMONY OF HON. LAWTON CHILES, GOVERNOR, STATE OF

FLORIDA

Governor Chiles. Thank you, Chairman Dingell, and to my good
friend Representative Roy Rowland, who co-chairs the Infant Mor-
tality Commission with me. I am delighted to have a chance to be
here and today especially as we make an infant mortality report,
which Rae Grad will make, and to my good friend. Congressman
Mike Bilirakis, I thank you for those kind words.

Governor Waihee could not be here today but he asked me to
submit his testimony for the record and I would like to do that.

Mr. Dingell. Without objection, that will be inserted at the ap-
propriate place. [See p. 457.]

Governor Chiles. Hawaii's pre-paid health plan, health care act,
is a comprehensive full-access program that sets the standard for
all States and so I submit that.

Mr. Chairman, before I begin my testimony, knowing of your in-
terest in protecting against certain predators, I wanted to report to
you that last Sunday morning I had an opportunity to be in the
area of a marauder. I thought I had picked my position well. Fol-
lowing the example of Southern military tradition, I had tried to
pick my ground. I had camouflaged my position. I thought I had
defended it adequately but this particular marauder without saying
a word slipped in behind me, almost assaulted me. Fortunately,
right won out and I was able to dispatch this predator. I just
wanted to let you know you are one behind unless you have started
already.

Mr. Dingell. I am delighted to know that you were able to
defend yourself.

Governor Chiles. Yes, sir. Having shared you all's responsibil-
ities and your point of view for awhile, maybe I feel a little like
Paul after having persecuted Christians for awhile. He felt the
Lord had given him a particular load to carry and I have the op-
portunity to do that in my second chance now in my trying to serve
13 million Floridians but 2.5 million of those have no access to af-
fordable health care. These are mainly working folks. They are not
permanently in this status. In fact, and that is the heck of it be-
cause but for a marginal change in circumstances any one of us
could sort of be where a number of them are, and I would like to
share with you just a few of their stories.

The Wauchula family was forced to sell their farm and all their
belongings to pay for the medical care of their 10-year-old daugh-
ter. A 40-year-old Miami motel maid was denied surgery at a public
hospital because she could not afford the $200 deposit. She made

328

too much money to qualify for Medicaid, too little to buy insurance,
and her job did not offer an insurance plan.

We have a case of a 14-year-old Palmetto girl, committed suicide '
after being discharged from a crisis center. Her working parents I
were ineligible for Medicaid but had no health insurance and could
not afford the private hospitalization that she needed.

An Indialantic family is on the verge of bankruptcy with
$200,000 in hospital bills for their 15-year-old daughter who has
cystic fibrosis. The family's insurance company stopped writing
medical policies in Florida, leaving them uncovered.

It was these stories and thousands more that moved us to pass
the Florida Health Plan, which calls for full access to affordable
care to all Floridians by December of 1994.

Our plan ensures that every Floridian will have a family doctor
with emphasis on a managed care delivery system. We pool the j
health care purchasing power of the State and local governments, i
We establish community-based health care promotion and wellness |
programs. We establish the Florida health services corps. We pro- ;
vide scholarship and loan repayment assistance to help profession-
als who serve in rural and medically-underserved areas. We prohib- j
it the denial or non-renewable of small employer plans because of I
health status, claims experience, occupation or geographic location.
We limit the premium rate increases among classes of employees
and we impose a 12-month limitation on the exclusion of pre-exist-
ing conditions. i

Mr. Chairman, I am a great believer in the free market and in
incentives over mandates, but if I am to provide those incentives I
need your help and additional flexibility.

Therefore, I am meeting with Members of Congress and the ad- j
ministration today to try to ask for the following Federal waivers: i

We propose a Medicaid buy-in program that would allow Florid- |
ians who don't qualify for Medicaid under the current rules to have
access to a program that uses Medicaid funds. To do this we need '
to remove the restrictions that tie Medicaid to other Federal aid
programs like SSI or AFDC. We need to separate health care from
welfare.

Mr. Rowland, Congressman Rowland, you pointed out what hap-
pens when States, many of whom are some of our Southern States,
and it's hard when you give these mandates that we have to do ev-
erything. Then we can't afford the coverage. We know what hap-
pened to States when you gave us the ability, and I helped do it
when I was up here, to get into the prenatal business without
having to cover all of the other things. States opted and I think
most have done it and it's certainly helped us tremendously in
Florida. We are looking for this kind of a buy-in program to cover
this 2.5 million uninsured people.

Another area we want to experiment is Medicare. I can't think of
any good reason why the States are given the authority to adminis-
ter the Medicaid program, yet the Federal Government insists on
managing Medicare. We want you to authorize Federal demonstra-
tion projects using alternative payment mechanisms including
single payer systems. We want the authority to use Medicare fund-
ing for managed care programs. It will cut the overall cost. Again,

329

if we can share in the savings, we can enhance these programs and
reach more people with better services.

We also want to amend the Employment Retirement Income Se-
curity Act, ERISA. This act prohibits the States from regulating
self-funded insurers. Understandably, there are many groups in-
cluding labor and business who want to avoid having to negotiate
different insurance benefits in every State. Again, we think there
is room for a compromise that will allow Florida to mandate cer-
tain benefits and experiment with the single payer.

The leverage of a pay-or-play plan would give us the pressure to
get the voluntary compliance that we feel that we need and if we
cannot get some kind of leverage off of getting the ERISA waivers,
our goal towards trying to get there on a voluntary basis just isn't
going to happen because this gives us the hammer. Congress and
you, Mr. Chairman, have talked about pay-or-play. The ability of us
to have the hammer by having the ERISA waivers, is tremendously
important, we think, to us being able to follow through.

Finally, there are several other administrative efficiencies that
can be achieved that would greatly enhance our ability to better
serve Floridians and save both Federal Government and our State
dollars. Those initiatives include the elimination of waiver require-
ments for home and community based services for the developmen-
tally disabled and elderly people of Florida, expanding managed
care programs as well as the development of a system of account-
ability that avoids the nit-picking that results from audit and docu-
mentation requirements that are a hindrance to effective govern-
ment.

Mr. Chairman, in a nutshell, we have got many areas in which
waivers have been granted not only to Florida but a number of
States, and yet every 2 or 3 years we have to go through the same
process. It is very expensive, very time consuming to try to get the
same waiver that we have already been given that we know works
and that just does not make sense.

Just to give you an example, it took us 28 months to get a waiver
to be able to treat AIDS patients at home under and using some of
the Federal funds as opposed to keeping them in a hospital setting
where it costs the Federal Government and the State government
much more money, 28 months.

Mr. DiNGELL. Governor, I don't often do this, but I think your
comment here is important enough that it ought to be addressed
immediately.

Your assistance in framing the particular complaints that you
and the State of Florida have had with this waiver process would
be immensely useful.

Governor Chiles. Fine.

Mr. DiNGELL. This is a matter of special concern to this subcom-
mittee and we are going to be having the Secretary before us short-
ly. We are in the process of writing budget legislation and dealing
with questions of that sort which would enable us, as you would
know in your experience, to proceed to write certain changes into
either the administration's or into the statutory body of law. Your
assistance in this particular arena would be of great help to us. So
if you could get your State officers who deal with this matter to

330

give us your specific set of concerns and complaints, it would
enable us to better serve you and other States.

Governor Chiles. Mr. Chairman, we will have that to you imme-
diately.

Mr. DiNGELL. Thank you. Governor.

Governor Chiles. We can do that, yes, sir.

Expanding managed care programs as well as the development of |
the system of accountability — I already covered that. '

Our Constitution guarantees all of us the right of free speech and
every State provides its citizens with the right to public education.
With your help, the fourth largest State in the country is willing to
try to extend the right of affordable health care to all of its citi- i
zens. We can be your laboratory. |

Our people have spoken. They want Government to ensure '
health care for all. There is neither an easy solution nor single so- 1
lution and many difficult steps must be taken to recast our health i
care system into one that is effective, economical and available to '
all. i

Our job, mine and yours, is to aggressively tackle the remaining :
problems and find the path t6 true health care reform. Further j
delay is the one thing that's no longer acceptable to our people. I j
am convinced that the solution lies in granting the States the addi- |
tional flexibility that they need to test their innovative health {
reform programs. |

[Testimony resumes on p. 384.] I

[The prepared statement of Mr. Chiles follows:]

331

STATEMENT BY

The Honorable Lawton Chiles

Governor of the State of Florida

Presented Before the

Subcommittee on
Oversight and Investigations

Committee on Energy and Commerce

U.S. House of Representatives

March 26, 1992

Chairman Dingell, Representative Bliley, and members of the Subcom-
mittee:

Thank you for inviting me here today. Governor Waihee could not be here
today, but he asked me to submit his testimony for the record. Hawaii's
Prepaid Health Care Act is a comprehensive, full access program that sets a
standard for all states.

I always welcome the chance to meet with my former colleagues of many
years, although I must say that serving as governor of the fourth largest state
has changed some of my perceptions of governing. I appreciate this oppor-
tunity to testify on what may be the most critical long-term issue facing
Americans today. This time, however, I am on the other side of the table seek-
ing the Congressional action I need to fully implement Florida's Health Care

332

Reform Act of 1992, legislation that contains my comprehensive health care
reform plan. On Ibesday, I signed the bill into law.

I am also here today to testify on behalf of some of Florida's two asd
one-half million uninsured people who do not often get the opportunity to tell
their stories. But they are stories that must be told.

• A Wauchula family was forced to sell their farm and all their belongings to
pay for medical care for their 10-year-old daughter.

• A 40-year-old Miami motel maid was denied surgery at a public hospital
because she could not afford a $200 deposit. She made too much money to
qualify for Medicaid, too little to buy insurance, and her job did not offer an
insurance plan.

• A 14-year-old Palmetto girl committed suicide after being discharged from a
crisis center. Her working parents, ineligible for Medicaid, had no health
insurance and could not afford the private hospitalization she needed.

• An Indialantic family is on the verge of bankruptcy with $200,000 in hospital
bills for their 15-year-old daughter who has cystic fibrosis. The famUy's
insurance company stopped writing medical policies in Florida, leaving them
uncovered.

333

• A St Petersburg couple's chronically ill 3-year-old daughter lost federal
disability benefits and state Medicaid assistance in the months when her
father received five weekly paychecks. His employer-sponsored family policy
expired after his daughter received only 18 months of care.

• A Safety Harbor mother was left with $15,000 in medical bills after the birth
of her baby because her employer's self-funded insurance plan ran out of
money, even though she had paid over $1,000 in premiums during her
maternity leave.

• A 61-year-oId Boca Raton woman must pay $5,000 per year to Florida's
high-risk pool for insurance with a $5,000 deductible. Hospitalized for
months after a car crash 8 years ago, she is now considered a bad risk by
insurance companies, even though she is in good health and has a healthy
lifestyle.

These snapshots from the front lines of our health insurance crisis
bring the problem into focus. Florida's uninsured are the employees of small
and medium-sized businesses that either choose not to offer coverage, or can-
not afford to do so because of health insurers' underwriting practices. They
are people with low-incomes who do not work but are ineligible for Medicaid.
They are disabled persons who can no longer work or who have their in-

334

surance cancelled by carriers who deem them unacceptable risks. IVagically,
far too many are our children who are denied a healthy start in life because
their parents cannot afford health care.

The effects of decades of steadily rising health care costs can no longer
be ignored. More and more of our citizens are finding their basic access to
health services severely limited by their inability to purchase affordable in-
surance. They are forced to delay seeking care until they have no choice other
than a sudden visit to an overcrowded hospital emergency room. More and
more Floridians feel they have nowhere to turn when they need medical atten-
tion.

But this is not simply a problem for consumers. No one who finances or
delivers health care is exempt from the effects of the crisis:

• For government, commitments to fund increasingly expensive health care
programs leave less revenue to fund other critical needs, such as education,
the environment, and criminal justice.

e For business, rising health care costs contribute to a decreased ability to
compete in the global marketplace, as prices are continually boosted to cover
higher employee benefit costs. With such a large portion of revenues being

335

diverted to health benefits, less capital is available for research and develop-
ment or long-term investment.

• For hospitals and other providers, growing numbers of uninsured patients
lead to increased cost-shifting, which helps decrease the effect of bad debt,
but inflates the bills of those patients who can pay.

There are many national health care reform proposals, ranging from in-
cremental reforms to employer mandates and universal health care
programs. As a poll of New Hampshire presidential primary voters recently
documented, the public, although dissatisfied with the current health care sys-
tem, has not endorsed any of the national plans being proposed (Kaiser
Family Foundation, 1992). Although I would prefer a national solution to the
health care problem, the federal government should encourage states to test
alternative designs before it decides which system is best for the entire
country and enacts major social legislation that will affect the lives of all
Americans (Wolfson, 1988).

Before I turn to the statutory and regulatory reforms Florida needs to
fully implement its health plan, I would like to take a few moments to sum-
marize our health problems and my response to the state's crisis.

336

Florida's Health Care Problems
Unique population characteristics make Florida an ideal site to test
health care reform. Our state has the highest percentage of elders in the na-
tion with 18.4 percent of the population aged 65 and older. It has the third
largest black population and the third highest percentage of migrants and
refugees. Approximately 12 percent of the state's population is of Hispanic
origin (U.S. Department of Commerce, 1991a). Besides this diverse popula-
tion, Florida also has almost 2 million residents who live in poverty (U.S.
Department of Commerce, 1991b). This is significant because studies show
that people with low incomes are more likely to report their health as poor or
fair than those with higher incomes.

Uninsurance

The nation's health care problems are magnified in Florida. Most
Floridians have insurance, but two and one-half million residents, 18.5 per-
cent of the population, are uninsured; 75 percent are workers and their
dependents, and almost one-third are children (Florida Task Force on Private
Sector Health Care Responsibility, 1991). Florida has the nation's third
highest percentage of non-elderly uninsured residentS"22.9 percent (EBRI,
1992). Its percentage of non-elderly uninsured is also higher than the 18.7
average of other Deep South states. Florida data from national studies show

337

that uninsurance is highest among blacks, males, people with incomes below
$25,000, and those between the ages of 18-39 (Himmelstein, 1992).

I Since employment is the most important determinant of health in-

surance coverage, part of Florida's high uninsurance rate can be explained by
the characteristics of its business community. Large businesses are more like-
I ly to offer health insurance as a fringe benefit than small businesses. But 95
I percent of Florida's businesses employ fewer than 25 people. Among firms
with 5 to 9 employees, 323 percent are uninsured. In even smaller firms (i.e.,
fewer than 5 employees), 60 percent are not covered (Florida Health Care
Cost Containment Board, 1990a).

L Workers in government, mining, flnance, insurance, and real estate are

I most likely to be insured (EBRI, 1992), but these industries represent only
22.4 percent of Florida's job market. Workers are least Ukely to be insured if
they are self-employed or work in agriculture, construction, retail trade, or
services (EBRI, 1992). Florida's largest industries are services and retail
trade, representing almost 49 percent of the state's 1990 work force (Florida
Department of Labor and Employment Security, 1991). Between 1990 and
2000, Florida will create an estimated 2.4 million new jobs, over half of which

Employ

■Based Insurance

338

will be in service and retail trade occupations where insurance is lowest
(Florida Task Force on Private Sector Health Care Responsibility, 1991).

Florida has the second highest rate of unemployment in the nation -
8.7 percent (U.S, Department of Labor, 1992). Recent layoffs by employers
who typically o^er health insurance (e.g., airlines, banking, and government)
also contribute to the state's burgeoning uninsurance problem.

HesdthCareC

Health care costs must be brought under control to make health care
available to all Floridians. As in the rest of the U.S., Florida's overall health
care costs are far outstripping general inflation. An aging population, unheal-
thy lifestyles, a lack of access to early primary and preventive care, and
proliferating medical technology combined with inappropriate use of health
care services, excess hospital capacity, and fee-for-service reimbursement con-
tribute to increasing costs. Nationally, the costs of employer paid health
benefits have risen three times faster than wages since 1980. Employee wages
and business profitability are constrained by every dollar spent on health
care. Between 1980 and 1990, Florida's health care expenditures increased by
234 percent, from $9.4 billion to $31.4 billion. By 2000, expenditures are

339

projected to reach as high as $90 billion (Florida Task Force on Private Sector
Health Care Responsibility, 1991).

Florida's health care inflation rate has consistently exceeded the nation-
al rate as measured by the U.S. Consumer Price Index component for
hospitals and related services. From 1988 to 1989, the state's health care
costs increased 16.6 percent, compared to 11.5 percent nationally (Health
Care Cost Containment Board, 1991). Florida Medicaid expenditures are
also an indicator of the problem. Medicaid's $4.1 billion budget, which has
tripled in the last six years, is expected to account for 14 percent of the state's
total budget in FY 1991-92. Conservative projections anticipate that it will
triple again to $13.7 billion by FY 2000-2001; and based on the most recent
four-year trend data, expenditures could conceivably reach $20 billion by 2000.

On average, Florida families spent $3^92 on health care in 1991, ac-
counting for 11.9 percent of their income. By 2000, family health spending is
projected to more than double to $8,235 (Families USA, 1991). For high-risk
individuals, the problem is worse. Enrollment in Florida's high-risk health in-
surance pool is limited to about 7,500, and premiums represent
approximately 20.2 percent of enrollees' total income. About 65 percent of the
risk pool's policy cancellations are for nonpayment of premiums. High medi-
cal costs are also a factor in the growing number of personal bankruptcy

340

filings. According to the American Bankruptcy Institute, Florida ranked
third in the rate of increase in bankruptcy cases between 1985 and 1991.

A study conducted by the Congressional Budget Office suggested that "
a major reason for high and rapidly rising health costs may be the failure of
the normal discipline of the marketplace" (Congressional Budget Office,
April 1991). Insurance companies have added layers of employees to
scrutinize virtually all medical bills. Prior approval is needed before hospital
care or expensive treatments are performed. Physicians are spending an in-
creasing amount of unproductive time completing forms and explaining their
actions to reviewers in distant offices. Our health care system is also over-
loaded with expensive, underused hospital facilities. In 1990, Florida's acute
care hospitals reported an average occupancy rate of only 52.5 percent
(Florida Department of Health and Rehabilitative Services, 1991). Acute care
facilities are engaged in a technological arms race to obtain new diagnostic
and therapeutic equipment that attracts specialty physicians and their
patients.

Rapidly rising health care costs are pushing us to the brink of disaster.
If costs increase as projected, major government and private sector employers
will be forced to join small businesses in curtailing health care benefits and
expenditures. In 1990, corporations saw a 27 percent increase to their health

341

care bill that had nothing to do with services for their workers (Stuart
Altman, personal communication, 1991). We must bring costs under control.
In neighborhoods across the nation, high costs for health care mean that:

• uninsured people use fewer health services and, as a group, have more illness
to cope with;

• families are going bankrupt trying to pay medical bills; and

• hospitals and other providers are less willing and able to provide free care.

HeaUhJtot^

Despite enormous expenditures on health care, the health status of
many Floridians, particularly the youngest ones, has not improved propor-
tionately. In 1988, Florida ranked only 34th in its infant mortality rate, 47th
in the percentage of babies born to mothers receiving early prenatal care, and
39th in low birthweight babies. One of every 13 Florida births is under 2,500
grams. One of eight births to mothers under age 18 is low weight. About
1,800 infants die in Florida every year before their first birthday. Statistics
such as these cast doubt on the value of our health care investment.

Other health status indicators present an equally unfortunate picture.
Although TB cases have increased by 13 percent since 1987, federal TB fund-
ing has declined by more than 63 percent. Florida ranks third nationally in

342

the number of AIDS cases. AIDS is now the eighth leading cause of death in
Florida. It is estimated that another 120,000 Floridians are infected with HIV.
Although AIDS cases increased by 45 percent from 1990 to 1991, federal fund-
ing for the same period declined. The cancer death rate has increased every
year since 1979. From 1981 to 1989, crude breast cancer rates increased by al-
most 17 percent from 112 to 131 per 100,0000, while crude cervical cancer
rates dropped slightly from 13.82 to 12.48 per 100,000. Heart disease and
strokes kill over 50,000 Floridians every year. Our apparent inability to sig-
niflcantly improve health status, even with our awesome investment in health
services, is one of the reasons I feel that comprehensive rather than incremen-
tal reform has become necessary.

Previous Health Reforms
Measured by its benefit package, the percentage of low-income popula-
tion enrolled, and the extent of its provider network, Florida had one of the
nation's most limited Medicaid Programs in the early 1980s. With the pas-
sage of the Health Care Access Act in 1984, the state launched its first major
health care access and financing revolution. Florida aggressively pursued
major Medicaid expansions throughout the 1980s, maximizing federal fund-
ing to enhance services and cover additional groups. Some optional coverages
implemented in Florida were later mandated by Congress. From 1980 to

343

1990, Florida had the largest percentage increase of all states in its share of
Medicaid expenditures. The state also implemented many other health in-
surance, cost containment, and primary care reforms, based on the expert
advice of numerous health care task forces.

Florida has pioneered several health care reform strategies, including
provider assessments to finance Medicaid expansions, disproportionate share
hospital reimbursement, the Improved Pregnancy Outcome Program, health
care networks for chronically ill and disabled children, and large-scale
primary care programs in county public health units.

Traditionally, Florida has relied on employer-based health insurance be-
cause the majority of insured Floridians are covered through the workplace.
Many of the state's innovations build on this tradition. With Robert Wood
Johnson Foundation funding, the state has developed nationally recognized
programs to address the uninsurance problem. The Healthy Kids Corpora-
tion is the first school-based health insurance program for children. The
Florida Health Access Corporation (FHAC) functions as an intermediary,
negotiator, and insurance cooperative for Florida's small businesses. It now
operates in 16 of Florida's 67 counties and insures 10,000 enrollees in 2,300
small businesses, reaching about 7 percent of the small employer market

344

Florida is the first state to test a government-sponsored, private non-
profit corporate health care purchasing cooperative, authorized by the 1991
Florida Legislature. The Florida Healthcare Purchasing Cooperative
(FHPC) will act as a pooled purchaser for state and local governments and
private businesses, particularly state contractors and small businesses. It
will aid private business alliances and assist them in restructuring local
health care systems to improve quality of care. Within five years the coopera-
tive is expected to serve 50 percent of governmental employers and 10 percent
of eligible private employers, saving millions of dollars.

In recent years, Florida has enacted significant small business health
insurance reforms, including a prohibition on the unilateral cancellation or
non-renewal of coverage, limits on premium increases, increases in the mini-
mum percentage of total premiums that must be paid out as benefits, limits
on premium increases due to expenses, and requirements that insurers com-
bine smaller groups for rating purposes.

Finally, the 1992 Florida Legislature has just passed model joint ven-
tures legislation prohibiting health care providers from referring patients to
laboratories, diagnostic centers, or any other health service organization in
which the referring provider is a major investor.

345

Healthy Start Initiative
I cannot think of a better way to illustrate why we must succeed with our
reform plans in Florida than to share with you the most recent report of the
National Commission to Prevent Infant Mortality that we are releasing here
today, TVoubling TVends Persist: Shortchanging America's Next Generation.
In a moment, the Executive Director of the Commission, Rae Grad, will more
fully discuss the report in her testimony.

Almost two years ago to the day, the Commission released another
report, also called TVoubling TVends. in which we tried to sound a loud and
clear warning to the nation about the poor state of maternal, infant, and child
health, and what could be done to improve the trends. Well, since we are here
today with this report, it seems that the alarm wasn't loud enough. Not only
is the nation's progress exceedingly slow in a number of areas, we are actually
going in reverse in many of them.

This cannot continue if we want to have healthy families, children able
to learn in school, and a productive workforce in the next century. It's too
costly, in terms of money, human suffering, and lost potential.

I am proud to report that we have heard the message in Florida and
have responded with our Healthy Start program. Healthy Start has one
major aim - to assure that all women have ready access to adequate prenatal

346

care and that their infants receive the health care they need. I am proud of
Healthy Start because it is evidence that we in government can be flexible and
creative and make use of many tried and true ideas that are already working
out there, but that have not been able to find their way through the
bureaucracy and the red tape.

Beginning in April, all pregnant women and infants in Florida will be
screened for risk factors that could have negative efTects on their health. We
will also expand programs to serve the health care needs of those patients
who have defects identifled through screening. Effective May 1, Florida
Medicaid eligibility will be increased from 150 percent to 185 percent of the
federal poverty level for pregnant women and children under age 1. In June,
the Medicaid reimbursement rate for obstetrical care will increase to en-
courage more providers to serve low-income patients. Florida has already
reduced its infant mortality rate from 113 deaths per 1,000 births in 1985 to
9.6 deaths per 1,000 births in 1990. I am convinced we will make further im-
provements to the Healthy Start program as we gain additional experience
with these interventions.

Florida Health Plan
Medicaid expansions have greatly improved public coverages in
Florida, but they have proved to be a double-edged sword. Medicaid now con-

347

sumes much of the state's new general revenues each year-and the pressure
to expand will continue as the population ages. Despite improved public
coverages, major segments of Florida's population remain uninsured. It is
now clear that Florida must attack the entire problem, rather than focusing
on only a few elements. Although I would prefer a national solution to the
health care crisis, Florida can no longer wait on federal action.

In January, 1992, 1 announced a comprehensive health care reform
proposal, the Florida Health Plan, to ensure access for all Floridians by
December 31, 1994. For the first time, Florida has announced as a matter of
public policy that every resident of the state will be ensured access to health
care.

In enacting the legislation, which passed the Senate by a vote of 35 to 2
and the House of Representatives by a vote of 109 to 0, the Florida Legislature
found that:

• Health care inflation, a deteriorating health care delivery system, reduced
state revenues, changing demographics, and the erosion of private health
insurance have converged to create a crisis of reduced access for the poor and
the uninsured.

348

• Access to health care is an increasing problem for many Floridians, especially
for women and young children, part-time employees, employees of small
businesses, and the unemployed.

• The failure of Florida's health care system to be accessible to all residents is
not only unacceptable to the Legislature for humanitarian reasons, but also
because it results in inappropriate and far more costly use of health resour-
ces, a less productive work force, and a less effective educational system.

• Almost half of the uninsured are at or near poverty, requiring insurance
reforms that significantly lower costs.

• Almost three-quarters of the uninsured are employed or are dependents of
employees, and half of these uninsured are employed by small businesses.

• A competitive market is lacking in some areas of health care and, therefore,
an appropriate level of regulation is necessary to ensure the quality, affor-
dability, and availability of health care services.

• The problem of health care access cannot be solved with the simple expansion
of existing programs, but requires major reform of the health care delivery
system.

The Florida Health Plan was prepared specifically for our state's
economy, reflecting its large percentage of small businesses, low-paying ser-

349

vice sector occupations, and significant seasonal migrations. Because the
plan is grounded in a knowledge of Florida's political and economic environ-
ment, it has found a receptive audience. Floridians tend to be conservative,
prefer less government regulation, and support voluntary efforts to problem-
solving.

The Florida Health Plan represents an appropriate Southern strategy
for addressing the state's health care problems. The Health Care Reform Act
of 1992 is a comprehensive, multi-strategy approach to health reform that in-
cludes the following major elements:

• First, over a two-year period, a new Agency for Health Care Administration
will consolidate health care financing, purchasing, planning, and health
facility, professional, and cost containment regulation. The agency will also
supervise Medicaid and State Employee Health Insurance purchasing.

• Second, the new agency will be responsible for developing interim recommen-
dations by December 31, 1992, and final recommendations by December 31,
1993 to fully implement the Florida Health Plan, provide access to basic
health services for all Floridians by December 31, 1994, reform the health
insurance system, limit health care cost increases to manageable levels,
restructure health regulation, and establish a comprehensive health care

58-688 0-92-12

350

data base. The Florida Health Plan is to be developed over a two-year period,
consistent with the following principles and strategies:

- ensure access to affordable basic benefits for all residents of the state
regardless of health condition, age, sex, race, geographic location, employ-
ment, or economic status;

- ensure coverage of persons who are unable to obtain or afford health
insurance coverage because of chronic or acute illnesses;

- distinguish the roles state and local government and employers should
assume in the provision of health care services;

- ensure that by December 31, 1994, all employees and dependents have
coverage for basic health care services or mandate that employers provide
such coverage;

- preclude employer-mandated coverages until state cost containment goals
have been met;

- reform private health insurance practices to ensure coverage for employees
and their dependents, regardless of their health status and employer size;

- ensure that an appropriate number and distribution of health care
faciUties and health professionals are available throughout the state by
January 1, 1996;

- provide fair reimbursement to health care providers in a timely and un-
complicated manner;

- ensure accessible health care services in rural and other medically under-
served areas;

- promote the accessibility of primary and preventive care and control the
proliferation of tertiary care;

- establish priorities for the use of limited resources, ensuring that higher
priority is given to those programs that have been shown to produce good
outcomes, secure a good value for their investment, and provide a healthy
start for the state's youngest citizens;

- consolidate the administration of state-funded, state-administered, or
state-sponsored health insurance programs;

351

- develop a public and private health insurance payer mechanism to simplify
provider billing, reduce administrative overhead costs, and maximize
government and third-party purchasing power;

- develop a system of handling medical negligence disputes that will ensure
a more efficient and equitable method for determining damages and com-
pensating iiyured parties;

- rely on private providers for the delivery of health services;

- ensure that all residents participate in a public or private plan;

- ensure that all residents contribute, based on their ability to pay, to the
financing of their health insurance;

- provide basic health insurance benefits that promote healthier lifestyles,
require people to assume greater responsibility for their health, and pro-
vide early diagnosis and treatment to avoid later and more costly medical
interventions;

- implement managed care in public and private health insurance plans; and

- redesign market entry controls to provide uniformity across all health care
providers, eliminate archaic or costly regulatory rules; limit regulation to
those areas which require regulation due to limited market needs and high
capitalization costs; and provide an appropriate level of regulation in areas
where market forces have been unsuccessful in constraining rapidly es-
calating costs.

Third, a unique voluntary private health insurance coverage and cost con-
tainment program will be implemented, including targets for measuring
progress from July 1, 1992, through December 31, 1994.

Fourth, fundamental market and structural reforms, including "play or pay"
employer mandates, will be ready for implementation in 1995 if the voluntary
program fails.

352

• Fifth, a single payer or limited regional payer system may be developed to
reduce administrative costs and leverage volume discounts.

• Sixth, major small business health insurance reforms will be implemented.
The legislation sets benefit standards; prohibits the denial or nonrenewal of
small employer plans because of health status, claims experience, occupation,
or geographic location; limits premium rate increases among classes of
employers; imposes a 12-month limitation on the exclusion of preexisting
conditions; reforms insurers' small business marketing practices; and estab-
lishes additional disclosure, advertising, and performance standards for
long-term care insurance. It also creates a small employer health rein-
surance program.

• Seventh, the legislation also tightens controls on hospital revenues and
imposes larger penalties for failing to conform to state limits; establishes two
new programs: a major statewide health promotion and wellness initiative
and the Florida Health Services Corps, a health personnel deployment
initiative; extends sovereign immunity to practitioners for providing uncom-
pensated care to low-income, uninsured people; mandates state contractor
insurance of their employees by July 1, 1994; restructures the state's health
care delivery to rely on managed care and practice parameters to reduce the

353

costs of defensive medicine; and includes other health reforms to control
health care facility capital costs.

The Florida Health Plan charts an ambitious agenda to alter the way
the business of health care is conducted in Florida. Its principles will provide
essential reference points for all the more detailed proposals that will be
developed over the next few years. Businesses, providers, and insurers, will be
asked to commit themselves to a goal of ensuring that all Floridians will have
health care coverage by the end of 1994. If significant improvements are not
made voluntarily, I will propose greater market and structural reforms to en-
sure global health care access.

I feel confldent that the people of my state support my vision. I will,
however, need your help to fully implement our plan. Health care is an area
in which the states and the federal government must cooperate closely to
achieve change.

Laboratories of Democracy

My friend David Osborne, who wrote Laboratories of Democracy

(1990), was inspired by an often-quoted comment in a dissenting opinion by
Supreme Court Justice Louis Brandeis:

354

There must be power in the States and the Nation to remould,
through experimentation, our economic practices and
institutions to meet changing social and economic
needs.»Denial of the right to experiment may be fraught with
serious consequences to the Nation. It is one of the happy
incidents of the federal system that a single courageous State
may, if its citizens choose, serve as a laboratory; and try novel
social and economic experiments without risk to the rest of
the country.

The states are Hnding it difficult to serve as laboratories, particularly
in the area of health care policy, because it is subject to many strict and un-
yielding federal laws and regulations. Several states, including Florida,
Massachusetts, Minnesota, New York, Oregon, and Washington, have
proposed major health care reforms to insure all their citizens. They are will-
ing to serve as the nation's health care laboratories, but virtually all these
pathfinders have been soundly criticized, and many of their reforms have
been weakened or eliminated in an effort to make them conform to federal re-
quirements. I share the fear of Christopher Atchinson, Director of the Iowa
Department of Public Health:

355

States have the opportunity to become laboratories for
experimentation, leading to a solution to this most difficult
issue (health care). I don't want our laboratory to be
underdeveloped and overregulated (National Governors*
Association, 1991).

Franklin Roosevelt once said that "practically all the things we've done
in the federal government are like things Al Smith did as governor of New
York," underscoring that many of the New Deal social programs, including So-
cial Security and unemployment compensation, were modeled on successful
state programs (Osborne, 1990). The widespread retreat from federalism and
greater use of preemption prevents the federal government from capitalizing
on this proven approach for experimenting with social and health reforms.

The 1960s' War on Poverty included a massive federal investment in
new health care programs for the elderly and the poor, community health
centers, and public health funding. Although the Medicare Program has been
a successful mechanism for ensuring health services for the nation's elderly,
its beneHciaries are paying an increasing percentage of their health care costs
out-of-pocket The Medicaid Program has helped the states pay for the medi-
cal care of low-income families and supplement the coverages of elderly and

356

disabled persons, however, it now only covers 40 percent of the nation's
population with below poverty incomes.

The 1970s was a period of rapid technological advancement, continued
investment in the nation's health care infrastructure, changes in the commer-
cial health insurance market, growth in employer self-funding, and staggering
increases in health care expenditures. For fiscal and ideological reasons, the
1980s was a period of retrenchment Spending limits, debt and entitlement
costs have forced the federal government to slash block grants, ehminate
federal programs, and try to accomplish its social agenda through state man-
dates, particularly in the area of Medicaid. Greater responsibility for health
programming was shifted to the states (Fox and Schaffer, 1989). In the 1990s,
the states are aggressively carrying out these responsibilities, expanding
coverages, reforming insurance practices, controlUng provider costs, and test-
ing various managed care strategies. ^

The states are now proposing more fundamental reforms to insure all
their citizens and reduce costs through the use of alternative payer methods.
Many of these reforms will require federal approval and financial support
Unfortunately, even in the absence of national reforms, the federal response
has been outdated and cumbersome program regulatory requirements, delays

I 357

and inaction on state waiver proposals, costly federal mandates, troublesome
audit and disallowance practices, and delays in rulemaking.

' Mr. Chairman, I concur with your comments in October when you said

I that:

Many states and local communities have been pushed to the
brink of economic disaster due to health care expenditures
I that still allow far too many to fall between the cracks in our

^ tattered safety net. State and federal governments have often

failed to assess realistically the factors fueling this crisis and
to enact responsible reforms...states clearly find themselves
between a rock and a hard place. They have been required to
provide more services to more people-without the federal
government assuring that the states will have the resources
needed for these and other crucial social programs that aHect
health.

Florida, like other states, is suffering through what is possibly its worst
recession since the Great Depression. The recession has resulted in sharp
reductions in revenues and massive governmental funding cutbacks, despite
increased demands for services. But the economic downturn has increased

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my enthusiasm for capitalizing on our opportunities. We face new challenges
to be more productive and efficient, to find better ways to do things, and to in-
crease public conHdence in government and the integrity of its officials.

Federal Statutory and Regulatory Reforms
I am optimistic about our chances of enacting major health care
reforms in the near term. Meaningful changes, however, require a partner-
ship of the federal and state governments. The states are ready to promise
accountability in exchange for flexibility. This compact will permit us to fully
test the health care innovations that will serve as the basis for national
reforms.

The Bush Administration's FY 1993 budget proposal sets a cooperative
tone when it asserts that:

Innovation at the State level can address the problems of
rising medical expenditures and access to quality health

care The Administration will continue to encourage States

to test new and creative ideas and provide incentives to
experiment with new initiatives, by allowing states flexibility
that is not available under current law.

359

In the same spirit, the 1986 Advisory Commission on Intergovernmen-
tal Relations adopted several principles intended to renew federalism, guide
federal regulatory decisions, and ehminate the federal government's
micromanagement of state and local governments. These principles are
worth reviewing to assess the negative impact of federal regulation on the
potential success of health care reforms (Daniels and Dimitrief, 1987):

• In most areas of governmental concern, state and local governments uniquely
possess the constitutional authority, the resources, and the competence to
discern the sentiments of the people and govern accordingly.

• The nature of our constitutional system encourages a healthy diversity in the
public policies adopted by the people of the several states to their own
conditions and needs, and frees them to experiment with a variety of ap-
proaches to public issues.

• Policies of the national government should recognize the responsibility of~
and should encourage opportunities for-individuals, families, neighbor-
hoods, local governments and private associations to achieve their personal,
social, and economic objectives through cooperative efforts.

David Osborne has described the new breed of governors, fully suppor-
tive of federalism, who are now designing the public/private partnerships

360

needed to solve major social and economic issues. They are either fighting or
coalescing special interests to get important legislation adopted on conten-
tious social issues. There is rarely a consensus among health care providers,
insurers, businesses, and consumers on major health care problems. But
Florida, Uke a few other states, has been able to overcome the odds and adopt
major structural reforms to its health care system. The states able to achieve
this almost impossible task are now having some of their reforms blocked at
the federal level.

In the past, the states negotiated their health care proposals individual-
ly with the federal government. The state of Minnesota petitioned Congress
in 1988 to "obtain a limited exemption from the ERISA provisions that
prohibit the states from regulating employment-based health benefits directly,
so that the state could establish requirements or tax incentives directly affect-
ing employers and employment-based health benefits that are intended to
protect consumers, ensure adequate coverage, promote access to coverage, or
promote competition" (134 Congressional Record S 5,241, 4/29/88). Oregon
has met steep resistance to its benefit design strategies. Innovative proposals
from other states, including California and Washington, also require federal
statutory changes and regulatory waivers to proceed. National health care
reform proposals, including Senator Mitchell's HealthAmerica plan and your

361

own National Health Insurance Act, also include innovations that would re-
quire similar statutory and regulatory changes.

There is an emerging pattern here. As more and more health care
reform proposals are presented, you will begin to hear repeated requests for
similar statutory changes and regulatory waivers from individual states, as
well as advocates of national reform. K any of us are to succeed as
laboratories of democracy, we must be given the tools to experiment

Recognizing that states are facing the same problems and seeking
similar solutions, the National Governors' Association adopted the position
that states should be granted the flexibility needed to implement bold struc-
tural changes to the health care system. The federal government must work
with the states to accelerate comprehensive, statewide approaches to expand-
ing access and containing costs (National Governors' Association, 1991).

To fully test the state's health care reforms, Florida needs statutory
changes and regulatory waivers in the areas of Medicaid, the Employment
Retirement Income Security Act of 1974 (ERISA), Medicare, and other health
legislative areas. I will briefly discuss needed changes in each area.

362

Medicaid

I would like to talk about Medicaid "waivers" in both the generic and
the specific sense. That is, I would like first to talk about three needed chan-
ges to the Medicaid statute so that it matches what most people think it
is— assistance to the states to pay for health care for the poor-and then talk
about other technical changes to the current program.

First, we need a statutory change to permit federal funding to the states
to cover not only the categorical eligible, but others with incomes at a higher
percentage of poverty. In addition, we should dispense with our present com-
plex eligibility tests for this group in lieu of faster and simpler means such as
pay stubs and income tax returns. Not all states could take advantage of this
assistance, and premium cost-sharing by the recipient should be required.
However, without federal assistance to help pay for the large group of unin-
sured people with incomes above current Medicaid levels, state governments
cannot reasonably be expected to shoulder the financial burden alone. Nor
does the prospect of fully insuring our citizens at an affordable, non-sub-
sidized price seem a realistic alternative.

Second, we should rethink the nature of assistance to the states to pur-
chase health insurance for low-income citizens. That is, it need not be
entirely entitlement driven. Florida is proposing a Medicaid Buy-In program

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that would offer a basic, low-cost plan targeted at people with lower incomes
and small businesses. Even without a premium subsidy, it would be helpful to
have a federal partner to back the risk of adverse experience at Medicaid
financial participation rates. Today, if we attempt such a program, we are
completely at risk, even though we are trying to solve a shared federal and
state problem. The same is true for "high risk" health insurance pools with
which our state and others have experimented.

Third, as this recession has once again shown, when times are bad, wel-
fare and Medicaid rolls increase at the same time state revenues decrease.
The result is a gut-wrenching reduction in services and eligibility at the very
moment that need is on the rise. Unlike the federal government, the states do
not have the ability to cushion economic downturns. What is needed is sig-
nificantly enhanced federal Medicaid matching funds during economic
downturns— be they regional or national in nature.

Now let me turn to some specific areas in which the states need
regulatory rehef.

First, we need relief from the often picayune nature of federal audits
and disallowances in the Medicaid program. These audits cost the states mil-
lions of dollars, do not involve any serious allegations of harm to patients.

364

and seriously jeopardize a harmonious federal-state relationship. For in-
stance, my state recently lost $7 million in federal funds because licensing
inspectors signed ICF/MR certification forms 3 to 9 days late. The inspection
had been completed in a timely fashion, and no threat to life or safety was
found. Nonetheless, all federal expenditures were disallowed, and the Federal
Grant Appeals Board was not permitted to take these circumstances into ac-
count. I recommend to you Senate Bill 1240 (Chaffee and Riegle), which
would remedy these problems and promote better federal and state harmony.

Second, our ability to launch cost containment initiatives is severely im-
peded by current federal "freedom of choice" and HMO requirements. While
HCFA has done much in the last year to streamline these requirements,
emulation of private sector cost containment initiatives is extremely difficult
in the Medicaid program due to these requirements. For instance, the cur-
rent "75/25" rule with regard to Medicaid HMOs has outlived its usefulness,
and this statute should be repealed. HMOs show much promise for public
and private patients alike. Where entities, particularly public hospitals and
local health departments, have organized health care for Medicaid recipients
in a better way, we do not believe they should be terminated from the program
(or forced through interminable bureaucratic hoops) simply because they do

365

not enroll private patients. We believe the issue is quality, not the proportion
of enrollments a payer funds.

j Third, there are a host of technical issues that need remedy in the areas

j of demonstrations, freedom of choice and home and community-based
waivers in the Medicaid program. In the area of demonstrations, for ex-
ample, it Hterally requires "an act of Congress" to extend these programs
beyond three years. For states who are trying to revolutionize their health sys-
I terns, and incurring all the political and economic unrest associated with such
a change, this is a discouraging factor. Not only is the time too short, but also
the potential pitfalls of assuring that Congress will continue the program are
great, making use of this waiver authority risky business at best. What if the
program is started, goes through growing pains, and then Congressional ap-
proval is not obtained?

Some of the home and community-based and freedom of choice waivers
demonstrate the problems with the current statutory setup. For instance,
freedom of choice waivers must be evaluated at the time of submission of the
renewal waiver (two years). However, the waiver request (and evaluation)
must be submitted at least three months prior to renewal, and time must be al-
lowed for startup (about six months), and for data collection and analysis
(three months). In addition, claims data are usually available only three

366

months after services have been provided (due to slow claims filing by
providers). This means that at best, nine month's worth of data can be
analyzed prior to renewal— frequently too short a time to permit a valid
analysis. The result, whether a waiver renewal or denial, is that judgments
are made on skimpy data. To add insult to injury, these evaluations are re-
quired to be continued— technically every two years—for as long as the
program is successful and is renewed by the state. This wastes a lot of our
resources.

Fourth, we need to rethink several federal Medicaid requirements
visited by federal law onto the states. One of the most important is the
"Boren amendment,** which is being interpreted by the courts as a mandated
return to cost-based institutional reimbursement. This is the very thing the
Boren amendment was designed to correct, by permitting experimentation
with prospective and other forms of reimbursement. Still another problem is
the requirement that all drugs be covered for which there is a federal rebate
agreement, without restriction, for the first six months of market entry. The
list goes on and on.

The important point is that we need to rethink this entire Medicaid
jtatutetf we are going to let states have the flexibility to cost-effectively pur-
chase health care for our citizens. After all, the federal government gets a

367

j larger share of the savings than the states. What we want to do is reinvest
I that savings by spending it on care for people who are not covered today.

I Fifth and finally, we need to rethinic federal policy in the area of the

I "Qualified Medicare Beneficiary/ also known as the QM B. This well-inten-
tioned federal policy, stemming from what little is left of the Medicare
Catastrophic Act of 1988, is posing a large administrative and expenditure
burden on the states. In our state, we are required to pay premiums, co-in-
surance and deductibles for people who, in addition to having the benefit of
Medicare insurance, by 1994 will have incomes up to 120 percent of poverty.
In 1989 and 1990 Florida spent $20 million more on Part A premiums than it
would have spent simply by paying for care outright.

Medicare

In addition to Medicaid changes, I am asking that Congress explore the
state-by-state administration of Medicare payments and the implementation
of managed care for Medicare beneficiaries. In enacting the Medicare and
Medicaid programs. Congress decided to establish a federally administered
health program for the elderly and some disabled persons, but a state ad-
ministered program of medical assistance for low-income families and other
disabled and long-term care patients. There is no inherent reason that ad-

368

ministration of these programs should continue in this way. In fact, the con-
tinuation of this peculiar administrative split impairs state-level health care
reform planning.

In many respects, Medicaid is becoming a supplemental insurance pro-
gram for low-income or institutionalized Medicare beneficiaries. But the
states do not have the discretion to merge their Medicare supplemental
coverages with the federal Medicare Program. The result has been a lack of
coordinated coverages for the nation's elderly. The states are unable to maxi-
mize the value of Medicare investments by broadening long-term care
coverages to include home and community-based services.

In Florida, health reforms for elders have lagged behind innovations
for families and children because of federal Medicare administration. States
are more knowledgeable of their populations and health care systems than
the federal government is, but their unique abiUty to plan programs for
Medicare beneficiaries that provide greater levels of services at less cost is
hampered by rigid, uniform regulation.

Section 402 of the Social Security Amendments of 1967 (EL. 90-248)
authorized the Secretary of the Department of Health and Human Services to
conduct demonstration projects to determine the effectiveness of health care

369

reimbursement systems established under state law. The Health Care Financ-
ing Administration has supported a variety of Medicare and Medicaid
prospective reimbursement and rate setting programs administered by
several states. The most notable experiments were the all-payer reimburse-
ment systems authorized in Maryland, Massachusetts, New Jersey, and New
York. When Medicare began to participate in these reimbursement
demonstrations, there was Uttle data on the success of alternative reimburse-
ment methods. Later they narrowed their demonstration interests to
diagnosis-related units of payment that eventually led to the creation of the
successful Medicare Prospective Payment System.

A similar rationale now exists for Medicare and Medicaid demonstra-
tions of single payer systems. They could very well be the next major health
care cost containment tool. State experiments of single payer systems, assum-
ing other ERISA and antitrust waivers, should include the federal Medicare
Program. With its large elderly population that accounts for more than 60
percent of hospital expenditures, Florida would be an ideal site to test a con-
gressionally authorized single payer system.

Medicare has fallen behind the states in experimenting with managed
care and utilization control programs. I believe Medicare needs to further
test alternative case management strategies for the same reasons it tested al-

370

ternative reimbursement systems in the 1970s and 1980s. To capitalize on
state managed care and utilization control systems, Congress should
authorize state managed care demonstrations to learn how to better control
Medicare beneflciaries' use of services, improve the quality of needed care,
and decrease per capita costs.

For these reasons, I recommend that Medicare laws be amended to per-
mit wide-scale demonstrations of alternative payer systems and Medicare
beneficiary managed care programs. Section 1886(c) of the Social Security
Act, as added by the Tax Equity and Fiscal Responsibility Act of 1982, permits
the HHS Secretary to waive ordinary methods of Medicare payment and per-
mit experimental state cost control systems with respect to hospital
reimbursement. This provision could be amended to authorize HHS to con-
duct experimental, state administered cost control and managed care
systems, including state administration of all Medicare benefits through
single payer systems.

EmA

Since three out of four uninsured Floridians are either employed or de-
pendents of employed people, there is no doubt that Florida's plans for an
employer-based full access health care system will require several key private

371

health insurance reforms to succeed. My reform plan, which preserves a role
for commercial insurance and self-insuring employers, cannot be fully imple-
mented because of the Employee Retirement Income Security Act (ERISA).
Though private employer-based coverage is the number one source of health
insurance for most Floridians, spiraling premium costs have placed these
policies out of reach for most small or medium-sized businesses and their
workers. The gradual failure of the private health insurance industry to serve ^
the small business market in an affordable manner is one of the primary
reasons we have developed the Florida Health Plan.

In the past two sessions, the Florida Legislature has enacted major
private health insurance reforms. However, the state cannot enact the addi-
tional reforms needed to equitably spread risk across all groups, guarantee a
minimum level of coverage, or install managed care or alternative payer sys-
tems because of ERISA preemption of state regulation. Skeptics of such
reforms contend that only a government operated universal health care pro-
gram will achieve the systemic changes Americans are demanding.
Practically and philosophically, however, I favor continuation of the employer-
based system. I believe it is a system that Americans generally favor and want
to preserve.

372

The Florida Health Plan will initially try to achieve health care
coverage for all Floridians by relying primarily on employers. Employer
responsibility for providing health insurance coverage for full-time workers
and their dependents will be voluntary for a period of two and one-half years.
But this plan represents more than a business-as-usual approach to the prob-
lem. We will begin setting targets that challenge our business community to
make a commitment to expand health insurance on a voluntary basis. K sub-
stantial progress is being made towards covering all Floridians by the end of
1994, 1 will recommend continuation of the voluntary approach. But if this
proves ineHiective, I will propose more fundamental reforms, possibly includ-
ing a "play or pay" mechanism, in which employers would have the choice of
either providing insurance benefits directly or paying into a public fiind for
their employees' coverage.

In today's private multi-payer system, it has not been possible to limit
overall health care spending with payments and reimbursements flowing from
so many sources. In addition to Medicare and Medicaid, 770 private in-
dividual carriers write health insurance policies in Florida. (Florida House of
Representatives, 1991) This multi-payer system exerts little control over
health care costs. We know that health care costs are skyrocketing and that
care is unavailable to millions of our citizens. Therefore, we need to develop

373

strategies to slow the runaway cost of health care. Unfortunately, the
problems of the employer-based, private health insurance system will become
worse if states are not given additional powers to regulate the system.

In 1974, the 93rd Congress enacted the Employee Retirement Income
Security Act. Congress determined that the national interest required legisla-
tion to protect employee beneHts. It also determined, because of growth in the
size, scope, and numbers of employee benefit plans, that their operational
scope and economic impact is increasingly interstate, that the continued well-
being and security of millions of employees and their dependents is directly
affected by these plans, and that interstate commerce must be protected by
preempting state regulation of employee benefit plans (RL. 93-406).

Since then, a coalition of groups, including labor, business, and in-
surers, have become a powerful force against any modification of the ERISA
semi-preemption clause. In fact, extension of the preemption to commercial
insurance has been proposed. Fox and SchaHer's analysis of legislative
materials and interviews with key legislators and lobbyists demonstrate that
labor and interstate employers wanted to prevent three things: (1) state
regulation of health and pension plans negotiated by management and labor,
(2) state interference in collective bargaining, and (3) state taxation of
premiums. They also wanted to ensure uniformity of regulation of national

374

contracts and the freedom to exchange benefits for cash wages or one benefit
for another (Fox and Schaffer, 1989). Only a few amendments since 1974
have successfully run the gauntlet of special interests: (1) the exemption of
Hawaii's Prepaid Health Care Act, (2) the authorization of state regulation of
multiple employer trusts, and (3) the mandate for states to require insurers
to make Medicaid a secondary payer (Fox and Schaffer, 1989).

ERISA has been construed by the courts as having an extremely broad
preemptive effect with little room for state involvement, with the possible ex-
ception of the regulation of benefits (as opposed to benefit plans) and of
self-insuring employers who use a third party administrator to manage plan
benefits (Ballam, 1989). Legal analyses of the states' ability to make major
structural health care reforms under ERISA are bleak. Only a decision
authored by Supreme Court Justice Arthur Kennedy when he was a judge
with the 9th Circuit Court offers any promise. He concluded that self-insur-
ing employers who purchase stop-loss insurance, as most do, are subject to
state regulation (Fox and Schaffer, 1989).

ERISA has had major effects on the nation's health policies and is now
delaying the further development of important health care reforms. Although
the original purposes of Section 514 may still be worthy, continuing to
preclude state regulation of self-funded plans will come at a great expense:

375

• States may move ahead with health reforms, risking a likely ERISA challenge
that could delay implementation for years. Massachusetts passed a law
taxing employers to fund health insurance benefits for the uninsured. Tax
proceeds would be rebated doUar-for-doUar for health premium expendi-
tures. This provision is currently being litigated. Others may attempt to
capitalize on judicial decisions that seem to permit regulation of self-funded
employer plans if they do not impose an undue administrative burden on the
self-insurer, purchase stop-loss insurance, or are administered by a third
party (Fox and Schaffer, 1988; Fox and Schaffer, 1989; Ballam 1989, Firfer,
1990).

• States may be immobilized, stuck at the proposal stage, fearing litigation and
interminable delays, but unwilling either to implement minor incremental
changes or more radical changes.

• States may abandon the employer-based and private insurance system that
Americans prefer and implement universal programs modeled on the
Canadian system that sidestep ERISA preemption.

• Fearing employer mandates, businesses may rush to self-insure, further
eroding state regulation of health insurance and preventing the universal
sharing of risk that is essential to most major health care reform proposals.

376

Although not fatal to my plan, failure to achieve ERISA reforms will
prevent the implementation of key parts. It will prevent Florida from regulat-
ing self-funded employee benefits or benefit plans, mandating employer
insurance, or possibly affect any employer tax to finance health reforms. I un-
derstand that forsaking ERISA protections would be a difHcult decision, and
alternatives would be exceedingly difficult to draft because of so many special
interests in legislative protections.

More than 50 percent of Florida's covered workers are employed by self-
insuring Hrms. Failure to secure changes in ERISA will result in (1) an
uneven playing fleld between commercial insurers and self-funded plans; (2)
continued cost shifts to larger self-funded plans because smaller employers
cannot afford commercial insurance; (3) possible abandonment of the
employer-based and private insurance system; and (4) the possible erosion of
benefits for employees in unregulated self-funded plans. There are several
possibilities for solving the states' dilemma and providing relief from
ERISA's stringent standards:

• Establish national benefit standards, employer insurance requirements, and
a uniform system of regulation by modifying ERISA or amending other
statutes (e.g.. Internal Revenue Code, Social Security Act, Public Health

377

Service Act) to regulate both insured and self-insured plans (Committee on
j Ways and Means, U.S. House of Representatives, 1990).

I • Simply repeal the ERISA preemption clause, allowing the states to fully
regulate health insurance, including self-funding plans; this will permit
states to regulate all insurers equally.

• Alternatively, repeal ERISA preemption for all benefit plans except those that
I are negotiated by interstate employers or by national unions, requiring the
^ states to permit interstate benefit plans to show equivalency to mandated

benefits.

• Repeal the ERISA preemption clause for states that ensure basic benefit
coverage for all citizens.

• Allow the Secretary of the Department of Labor to waive statutory require-
ments to test ERISA-prohibited reforms, such as employer mandates and
single payer systems.

• Authorize state-specific state health reform demonstrations in federal
statute.

• Limit ERISA protections to currently self-funded plans, preventing
employers not currently insuring their employees from fleeing to ERISA

378

protection by self-insuring when states impose mandates or other regulatory
reforms on non-ERISA protected insurers.

• Amend ERISA to permit states to spread the risk of high-cost cases to all
insurers, commercial or self-funded.

I recommend that Congress schedule testimony as soon as possible to
draft ERISA revisions that balance the special interests of labor, business,
and insurers with those of states confronted by rising health care costs and in-
creasing uninsurance rates.

I would like to add that I fully support private sector efforts to solve our
health care cost and access problems, but I am also aware of the depth of
these problems, and the extreme difHculty we as a nation have had in attempt-
ing to solve them. If private efforts alone could provide access for all citizens
to health care at a reasonable price, I believe they would already have done so.
A real solution to our growing health care dilemma will require a public-
private partnership and a cooperative effort by all concerned.

Other Regulatory Issues
I would like to commend Congress on its recent history of enacting
stronger federal certification standards for the nation's health care facilities.
In particular, the OBRA 87 requirements have led to better care in our state's

379

long-term care facilities. The number of nursing home residents who are
physically restrained has dropped from 55 percent in 1987 to 17 percent in
1992. In addition, the COBRA hospital emergency access provisions, which
parallel Florida's state licensure requirements, have strengthened our posi-
tion in forcing hospital compliance and ensuring proper handling of
emergency room patients.

Florida, however, takes issue with some federal quality of care
regulatory requirements. First, Florida is opposed to further privatization of
the certification process. HCFA currently allows hospitals accredited by the
Joint Commission on the Accreditation of Health Care Organizations
(JCAHO) to substitute JCAHO accreditations for federal certification sur-
veys. I understand that HCFA is studying the feasibility of deeming private
accreditations obtained by other health care facilities for Medicare and
Medicaid certification purposes. I believe that regulation of quality of care is
a public health responsibiUty that cannot be delegated to the private sector.
Private assessments are more costly, provide for less public disclosure of find-
ings, and are less stringent If this function is delegated, the surveys
conducted by private accreditation organizations should at least conform to
federal standards.

380

In addition, I believe that HCFA has focused on the certification stand-
ards for long-term care institutions, home health agencies, and clinical
laboratories, giving less attention to the quality of care improvements needed
in other health care facilities. I recommend that a more balanced regulatory
process be adopted in which HCFA attends to the quality of care requirements
of all health care facilities subject to Medicare and Medicaid certification.

My state agencies are also concerned about the time elapsing between
legislation and draft regulations and between draft and final regulations, as
evidenced by the time needed to conclude OBRA 87 and CLIA rulemaking.
Implementation delays make it difTicult for the states to determine future
resource requirements, or to work with health care providers to ensure a
smooth transition to new standards.

I beUeve that Congress should authorize state "equivalency," allowing
the states to substitute their licensure standards for similar federal stand-
ards. I also support federal matching funds for innovative state licensure
programs that are outcome oriented, lead to superior care, and contain health
care costs. Finally, I believe that Congress and HCFA should be ever mindful
that overregulation is expensive and simply drives up costs, making insurance
less affordable. Detailed fiscal impacts, using estimates from the states.

381

should be prepared to assess the cost implications of new federal regulatory
standards.

CLOSING REMARKS
Heavy federal regulation of the states' health care systems, including
Medicare, Medicaid, and ERISA dictates, has stressed uniformity over ex-
perimentation. However, uniformity is more desirable in some areas than in
others (e.g., currency). It is also more desirable when there is a consensus
about what should be done. Until the imposition of a national health in-
surance program, states should not be prohibited from taking different
approaches to common problems. Uniformity is simply a euphemism for the
disablement of state authority (Wolfson, 1988). This suggests a final option
that I would like to mention.

Because of the overriding importance of testing alternative structural
health care reforms in anticipation of national preemption through a nation-
al health care program or a highly federally regulated state-administered
health program. Congress could legislate a new section of the Social Security
Act, authorizing large-scale demonstrations of health care reform plans. This
could include generalized authority for waiving Medicaid, Medicare, ERISA,
federal antitrust laws (needed for implementation of a single payer system),

58-688 0-92-13

382

and any other statutes or regulations necessary to obtain a full test of an in-
novative health care reform plan involving multiple federal programs.

Correcting the inadequacies of my state's health care system and secur-
ing sufficient revenues to fund essential public services are two of my biggest
challenges as governor. Florida's problems, although unique in some
respects, are similar to those faced by all governors, Congress, and the Presi-
dent Major health care reform is now at the forefront of public debate.
Although a Bush Administration proposal and several congressional bills
propose to redesign our complex health care system, there is no assurance
that Congress and the Administration will agree on health care reforms in the
near future. The year of a presidential election is not a time when party dif-
ferences will be laid aside easily, but our citizens demand and deserve a
bipartisan approach to health reform. Now is the time for leadership and
statesmanship. The longer we delay, the more our options narrow. We have
long passed the point that minor tinkering will solve the problem. We have no
choice but to act boldly.

Perhaps it is also necessary to acknowledge that many of the important
players in the health care industry benefit economically under the current sys-
tem. Under these circumstances, we would naturally expect that those who
are doing, well may be reluctant to advocate change. But we question how long

383

this state of affairs can continue. When we hear it said that the United
States has the best health care in the world, we must remind ourselves
that it is only the best for the people who have access to it. We cannot
continue to ignore the millions without coverage.

Our people have spoken; they want government to ensure health
care for all. There is neither an easy solution, nor a single solution,
and many difficult steps must be taken to recast our health care
system into one that is effective, economical, and available to all. My
job and yours is to aggressively tackle the remaining problems and
find the path to true health care reform. Further delay is no longer
acceptable to the people. I am convinced that the solution lies in
granting the states the additional flexibility they need to test their
innovative health reform plans.

384

Mr. DiNGELL. Governor, the committee thanks you both for your
presence and for your very valuable testimony and statement. I
feel particularly pleased to see an old friend back before us.

The Chair is going to recognize now my colleagues, starting with
Dr. Rowland.

Mr. Rowland. Thank you, Mr. Chairman. Thank you very much,
Governor Chiles, for your comments.

Let me ask you a little bit about the Medicaid buy-in that you
propose there. I think that one of the most difficult problems that
we have in trying to basically restructure our health care delivery
system is a mechanism to finance it. That's not just true for this
country. I have visited several Western European countries. I have
been to Canada. All of them are having increasing difficulty, the
governments are having increasing difficulty in finding ways to fi-
nance the increasing demands on those systems and they are strug-
gling to do that.

It seems to me that the Medicaid program has been one that is
subject to great abuse by recipients as well as providers of care,
and while it has brought care to the poor and has helped improve
their situation significantly, it has cost far more than was ever an-
ticipated at the time of its inception.

What types of cost containment measures have you thought
about if there is a buy-in into the Medicaid program? How will
those abuses that have occurred be controlled?

Governor Chiles. I think there may be several ways. One, we
are, in our health reform act that we have passed, we have com-
bined really sort of all of our leverage into one department and so
many areas, many times it's like you are building a new bureauc-
racy. We're taking kind of what is out there and putting it togeth-
er.

Our cost containment board will reside at the same place where
we in effect, in the same area, in the same department where we
have control over physicians, where we have control over in effect
the hospitals and the medical care providers who are, you see,
bringing them all in together.

We in Florida have an aggressive fraud detection unit and we
are making some pretty strong cases and we have certainly had
some problems in Florida, as this committee knows, but we are
now aggressively pursuing, and we run a profile that we pretty
well can tell if, you know, some problems are out there or where
we should look if we see certain things start showing up on that
profile. It's like the IRS does on our tax returns, the way they
screen them.

That's been very helpful to us. I think that is something that can
be done and as I say we are going much further towards cost con-
tainment. We are going to direct and manage care. We are doing
things like allowing physicians that participate in Medicaid to per-
haps have some of the State's sovereign immunity so not be subject
to some of the malpractice claims. That's a hammer and a carrot,
you know, as you go into that, so we are taking a number of steps
to do that and I would say we are administering a Medicaid pro-
gram in a pretty efficient way but we intend to build it up even
stronger in our detection methods.

385

Mr. Rowland. You've been working with the Florida Medical As-
sociation

Governor Chiles. Yes, sir. Oh, another thing I wanted to tell you,
part of the legislation we passed will prohibit physician-owned clin-
ics being able to refer and I think we're landmark legislation in
that regard. We have given them a couple of years to just termi-
nate those clinics and so you will not have physicians referring pa-
tients to clinics, to labs in which — or other facilities that they have
an interest in.

Mr. Rowland. You have been working with the Florida Medical
Association, I assume, in putting this together.
Governor Chiles. Yes.

Mr. Rowland. And do you have a good reception from them

Governor Chiles. Yes, sir.

Mr. Rowland. Do you have a good reception insofar as the cost
containment fees? Are they receptive to accepting

Governor Chiles. Well, yes they are. They were very supportive
of our legislation, but understand, what our legislation has done is
really said we are going to give the doctors, the insurance provid-
ers, the business community, everybody a period of time to accom-
plish this coverage on a voluntary basis.

While that is going on, we are putting together a board that will
determine what additional steps be taken and as of December of
1994, if we have not covered people, we will be ready to move for-
ward with pay-or-play or other mandatory provisions, so what the
Medical Society and all of the groups have bought in to the con-
cept, you know, that we have drawn the line in the sand. It's got to
be done by 1994 and so in effect we have sort of set the dimensions
of the playing field.

Now there are going to be some knock-down, drag-outs between
now and then as to how — as we get there, but everybody has
bought in at this stage that we are going to get it done, that they
have to participate, and so

Mr. Rowland. Where is your principal opposition to this propos-
al? Trial lawyers I am sure are going to be opposed to some immu-
nity-—

Governor Chiles. Well, the trial lawyers were very opposed to a
general immunity.

Basically as we have restricted it, you know, to the work on Med-
icaid patients, they have — you know, part of that opposition has
changed.

Generally speaking, I think to start with everyone had wanted
something different but I think they began to realize that Florida
was serious, that we were going to go in this direction, that we
were going to give a period of time to see if it could be done — in
other words, we called their bluff, basically, to all of the groups
that say the private sector can do this, we can do a voluntary
thing. We said fine; we'll give you till December of 1994 to do it
and we'll put all of these steps in place to help and that's commu-
nity rating.

You know, one of the big problems is where a small business gets
rated totally different or if a small business has one person with a
disease or has had a pre-existing disease it blows them out of the
water, so community rating, pool-buying, all of these are steps that

386

we think will help take part of that 2V2 million out. The Medicaid
buy-in is a big step to take a portion of the 2y2 million out.

We think that with the combination of those things we really
think it is possible to get there, but if we don't for that piece that's
left, again, everybody knows that we are going forward with some-
thing mandatory.

Mr. Rowland. This buy-in would be indexed?

Governor Chiles. Yes, sir. See, what we would be asking is that
we be able to go above the poverty rate.

Now, this would cost the Federal Government some money, but
we would match it with State, 55 to 45. We estimate, for $1 billion,
the Federal Government, matched by about $850 million from the
State, that we could cover this V^h million people.

Now, when you look at what it cost the Federal Government
from last year to this year in the increase in the Medicaid cost,
that was $600 million. So, the president and certain people say this
has to be cost effective.

Hell, we can almost assure it is cost effective in the first year,
because — and again, if you subscribe to the theory which I so
strongly do, until you provide access to everyone, you cannot con-
trol costs.

I used to think you had to control costs before you provided
access. Now it's clear that people get health care. They go to the
emergency room. They wait until they are so sick, and they get
their care in a way that is much more expensive.

So, until we provide that family doctor for them, we will not be
able to manage, you know, the health care, and of course, we are
trying to get away from fee for service and go to managed care. All
of those things are part of what we are trying to do.

Mr. Rowland. The funding will be principally Federal and State.

Governor Chiles. Yes.

Mr. Rowland. Has any thought been given

Governor Chiles. No. We anticipate that, from the private sector,
again because of the hammer that we have got, that we are going
to have much more participation, some from the private sector, as
well.

Mr. Rowland. The private sector as well?
Governor Chiles. Yes, sir.

Mr. Rowland. What about local government, county and city
government? Has any thought been given to involving them as
well?

Governor Chiles. Well, in Florida, I might say, we have just
passed a reorganization of our health delivery service which decen-
tralizes it and brings it back under local control. We think that is
very much going to make a partner of the local county and city
government in all of these steps that we are taking.

Mr. Rowland. So, you are looking at Florida as being a demon-
stration project

Governor Chiles. Yes, sir.

Mr. Rowland [continuing]. To see how this would work.
Governor Chiles. Yes, sir.

Mr. Rowland. You are not aware of any other State having a
similar proposal.

387

Governor Chiles. Well, let me tell how we would differ, sort of,
from the Oregon proposal, maybe.

Oregon decided how many dollars they had to spend and then, in
effect, built their benefit package based on the dollars they had to
spend.

We are trying to reverse that and say we want to build a basic
benefit package based on need, what we think, really, a family
should have and then we will put together the dollars to take care
of that need.

So, I would say Oregon is trying to do what we are doing.
Hawaii, with their sort of single plan, is trying to do that, as well.

I think 4 or 5 ought to experiment, maybe up to 10, and let us
see what works out there.

Mr. Rowland. I see my time has expired.

Mr. Chairman, I hope we come back for another round of ques-
tions.

Mr. DiNGELL. It is the Chair's plan to hear from the Governor in
any way he wants and to allow the members to explore these ques-
tions with him as fully as possible.

Mr. Rowland. Thank you.

Mr. DiNGELL. The gentleman from Florida, Mr. Bilirakis.
Mr. Bilirakis. Thank you, Mr. Chairman.

Just, I guess, a generic question but a very significant one, Gov-
ernor. You have been talking about the Florida plan with Con-
gressman Rowland. I am sure you know that some sort of a nation-
al health plan, whatever the title might ultimately be, is on a rela-
tively fast track up here.

I do not think any of us anticipate anything like that in the year
1992, but hearings are already being held. I am not sure if any
markups will be held, but in any case, we do not expect anything
on the floor this year, but it is on a fast track.

Now, you basically used the term "the solution" or something to
that effect, and I do not mean to pit your ideas or our parochial
Florida ideas against the Federal Government or against the Con-
gress, but might you be suggesting that it would be best if the Fed-
eral Government passed laws, and addressed the question of flexi-
bility and waivers and the use of the Medicare dollars and then
leaving it up to the States, encouraging the States somehow to pass
their own particular plans, rather than a national plan?

Governor Chiles. Well, we need the Federal Government as a
partner to ultimately take care of this problem. I am not going to
tell you that we can totally do it on our own, but I guess there are
two points I want to make.

One, if the Federal Government passed a national plan today, I
would hope that would not be in the old mode that we used to do
things that was top-down, that told every State exactly what they
had to do and how they had to do it, and the old way that we did
things, because that is where I think we get a lot of the problems.

States are unique. They have different problems. They have dif-
ferent capabilities.

Something that, again, provided outcome measures that the
States had to comply with, the States having to come up with a
plan that would pass muster of certain requirements, all of that, I

388

think, would be good. The Federal Government needs to follow its
dollars.

It needs to be able to monitor and audit its dollars and should
not just pass the money down, but the more specificity there is in
the national plan of locking it in, the more problems we will have
of ever niaking that work, because again, it has to be administered
line by line, with all kind of personnel, and the bureaucracy gets
into it, and then any change would go back into a waiver process
and all.

So, the more flexible it could be, the more goal oriented, the
more outcome measured that it could be, it would be better.

Now, what we are saying is — and you said relatively fast track.
These cases that I am talking about are occurring in Florida today,
and they have been, and we cannot wait or we should not be wait-
ing.

So, we are saying, in effect, even if it was the same amount of
dollars, but we would like to ask for a little bit more for the buy-in
that I have talked about, free us up and let us demonstrate, you
know, some of the things that work that would again, I think, give
the ability to draw the better national plan so it would show why it
needs the flexibility, why it needs those things, and the other thing
is, politically, as we are talking, nothing is going to happen this
year.

If something like the Leahy bill passed or a similar bill that is on
the House side that gave some States sort of blanket waivers, I
think that would be the best thing that could possibly happen.

Mr. BiLiRAKis. Well, you have been up here long enough to know
that probably anything that we would do would have strings at-
tached and the specificity that you would not like from the stand-
point of the States.

Governor Chiles. Well, for the mere thing that we are asking
about and the chairman has responded so favorably that you are
going to try to do something to give us these waivers, the reason
we need these waivers to start with is because the way that the old
plan of Medicaid and Medicare is drawn so tight that something
comes along, like AIDS, we never anticipated before — now, we are
determining, in Florida, we have the lowest percentage of our pop-
ulation that goes into nursing homes of any State in the Nation.
Thank goodness we do, because we have the highest percentage of
elderly.

The reason we have that is because we work very hard with
home health care, with home services, and we need all of the waiv-
ers we can get to say let us use part of the nursing care dollars to
keep those people at home, where we do it for a tenth of the cost
and give them a quality of life that is much better.

So, all of that dictates that you do not want to draw this next
national health care bill in the same way we used to do things.

Mr. BiLiRAKis. Thank you. Governor.

Mr. Chairman, I guess, in the process of any sort of a national
plan that we come up with, we will have to obviously have to con-
sider in that formula States like Florida that will have already
passed their own plans, and thus far, I do not see that happening
up here.

Thanks so much, Lawton. It is always great to see you.

389

Governor Chiles. Thank you.

Mr. BiLiRAKis. Mr. Chairman, thank you for your courtesy in al-
I lowing me to ask my questions.

Mr. DiNGELL. The Chair thanks the gentleman.
I The Chair is going to make an observation.

I This is one of the things on which Mr. Waxman and I are now
I working, and we do intend to consider States that are innovative,
I that are trying to lead, giving them an opportunity to go forward
i in the best way possible in the full expectation that they are going
to make a valuable contribution to figuring out how we are going
to move this current inefficient, wasteful, and insane system of pro-
viding health care toward something which makes better sense
from everybody's view.
Governor Chiles. Mr. Chairman, you can go ahead and just
I speak strongly on it. You do not have to hold back.

Mr. DiNGELL. The Chair is going to recognize our friend, Mr.
i Upton.

I Mr. Upton. Thank you, Mr. Chairman.

Governor Chiles, I deeply appreciate your willingness to come
this morning and testify on the track record in Florida.

The chairman had some hearings a couple of weeks ago in De-
troit, where we talked specifically about trying to get a waiver for
a Wayne County project, and I am sure that issue will come up
[ later this morning, when HHS is here to talk a little bit about

their waivers and flexibility that they are going to need.
I I guess the bottom line that I would like to solicit your advice
" and thoughts on — I am sure that you are probably aware of Presi-
dent Bush's comprehensive health plan that he came out with ear-
lier this year, and on page 66 of their book, it talks about a key
component that, ''Most importantly, under current law. States
must go through a waiver process to secure Federal approval to es-
tablish a coordinated care program. Complex statutory waiver re-
quirements are overly rigid and have blocked a number of initia-
tives that long have been underway in the private sector."
Would you agree with that statement?
Governor Chiles. Yes, sir.

I Mr. Upton. I looked a little bit at the Oregon plan. Maybe what
we are trying to do in Michigan, through Wa5me County — flexibil-
ity in trying to get some waivers from HCFA seem to be exactly
what we ought to be looking at, and your testimony, I think, under-
scores that thought.
Governor Chiles. Yes, sir, very much so, and the fact that, once
I that ground has been chartered and you see that a waiver works,
why should another State wanting to do the same thing, another
county, why should they have to go through the same hoop and
hurdle, and why should existing States have to go back every 2 or 3
years to renew their waiver at great expense and great cost?

All of that is just sort of a total waste, and it shows you what
this bureaucracy is doing to us.
I Mr. Upton. Now, it is my understanding that the waiver for
Florida has yet to be granted. Is that correct?

Governor Chiles. We have some waivers that have been granted,
but what we are seeking now is literally sort of four different areas

390

of waivers, and those have not been granted. None of those have
been.

Mr. Upton. What have been some of the hoops and hurdles that i
you have been forced to go through? I

Governor Chiles. Well, I mentioned earlier, it took us 28 months |
to get a waiver to be able to treat AIDS patients at home and have
the flexibility of using some of the dollars that we were using treat-
ing them in a hospital setting, which cost us much more money,
did not give them a quality of life that was appropriate, but it took
us 28 months to go through that hurdle. j

I am sure other States are out there trying to get some waivers |
on that now. Why shouldn't we just, say, issue something that says i
you can use your AIDS money for any person it would be. '

The cold bed formula is an interesting way of thinking. I do not \
know whether you understand that or not, and I am not sure I do,
but basically what we did is we said if you had a person that was
eligible or could have been in a nursing home and you could show
that you remove that person from the nursing home and treated
them in a home setting, you could use the money. Now, today,
under that formula, you have got to show that you have the bed in
the nursing home before.

Now, Florida, every month, has all of these people over 65 and 70
moving into the State. Why do we have to go build the beds in the
nursing home to show that we have got the cold bed? i

Why can't we say, you know, if that person would be eligible, if ,
they meet the criteria, you can use that money to keep them at
home? It is going to save the Federal Government money, it is |
going to save the State money, and allows those people to have a
quality of life. i

Now, the hoop we have to go through is, in effect, to show you i
have a nursing home space that is there that you take someone out |
of or that you do not use, an empty space. That is crazy. i

Mr. Upton. You talked a little bit, in an earlier response to a I
question, that you compared Florida's plan to Oregon's. |

Whereas Oregon may have looked at the money first and then |
looked at the programs, you have been looking at the need first I
and then try to put the program back together that way.

I know that Florida has had many of the same budget troubles |
that the State of Michigan has had, and I know that — and I re- j
member when you called a special session, back, I guess it was last i
December, to look at where the budget could be cut. '

Governor Chiles. We are in another special session now. j

Mr. Upton. Are you? I

Governor Chiles. Yes, sir. I

Mr. Upton. I know that, I think, last December, the session re- i
suited in the termination of the medically-needy program, which j
scaled back Medicaid assistance for elderly and disabled folks with
incomes between 90 and 100 percent of the poverty line. |

Obviously, all of your budget decisions are because of very tough
choices that you have had to make, but did you make that decision
more or less on budgetary grounds?

Governor Chiles. Strictly on budgetary grounds. It is a dumb cut, I
and we said, you know, at the time that we had to make it, because \

j 391

we had a $600 million shortfall, that it ought to be one of the first
things that we address.
I In the investment budget that I put before the legislature this
' time, it is one of the key items that we say it does not make sense
i to cut that money. When we reached that — see, I have had to cut

about $2 billion in the last year.
' I said the first billion I do not think will be missed. When we got
[ into the second billion, we began to cut good programs. That was
I one of the very good programs we had to cut. Now, we cut that one
because we cannot cut the Medicaid for the poverty. It was an elec-
tive program.

We also cut the program that provided prescription drugs for el-
derly citizens that keeps them out of nursing homes, again totally
wrong, and we say now that is why we need to have some addition-
al income in Florida, because those programs are not savings. They
I are transferring of cost. They are transferring of suffering. They do
I not make sense at all.
' Mr. Upton. Thank you.
i I yield back, Mr. Chairman.

Mr. DiNGELL. The Chair thanks the gentleman.
I Governor, you have talked about the waiver problem, and I
would like to ask some question* on that.

First, what happens to the Florida plan if you do not get the
waivers that you have requested soon?

Governor Chiles. Well, we go forward as far as we possibly can
go.

Mr. DiNGELL. You will be hamstrung somewhat by the absence of
those waivers.

Governor Chiles. Yes, sir. We will not be able to get to our goal
in 1994, and we will not be able to mandate some of the coverage
that we are talking about, because we will not have the ERISA
waiver.

So, pay-or-play — in other words, in Florida — ^you can pass a pay-
or-play up here. I cannot pass one in Florida because of things like
ERISA and other requirements that you have.

Mr. DiNGELL. Tell me. Governor, you will also see, then, a cut in
the level of benefits as well as a retarding of the time at which
these

Governor Chiles. What we will see, Mr. Chairman, is a contin-
ued growth in the health care cost. This Medicaid growth over the
last 10 years in Florida was 365-percent increase.

It is the driving force that takes all of my money, so I cannot
spend money for education or I cannot spend money for law en-
forcement or I cannot spend money for other programs that I want
to in my State, because I am forced, under your Federal mandates.
Congressman Rowland, that I helped to pass when I wais up here —
you know, it siphons all of the money, and we cannot control the
cost, because it does not give us the ability to manage care, it does
not give us the ability to get away from fee-for-service, those kind
of things, and without that and just providing access, we know we
will never be able to control our costs.

Mr. DiNGELL. Does this proposal that you are discussing with us
now give you the ability to control costs?

Governor Chiles. Yes, sir.

392

Mr. DiNGELL. How about the cost-benefit ratios from the stand-
point of the State and from the standpoint of the Federal Govern-
ment?

Governor Chiles. It will help both, because if Florida's grew 365
percent, the Federal share is 55 percent of that, and you know
what that portion of our national budget that has been and how
out-of-control it is.

So, it is growing exponentially, and unless we do something to
control that, we will not control costs, and that is why we are
saying access is the key, with cost containment, with going to man-
aged care rather than fee-for-service, with making sure we control
some of the liability costs.

It is putting all of these things together with having the private
sector participate more, with having some kind of a minimum ben-
efit package that gives that basic family the coverage that they
need.

Mr. DiNGELL. Now, Governor, I think this is probably something
you would like to submit for the record, and I think maybe you
would like to have your health people give you and us more guid-
ance. But preliminarily, how would you guide us in trying to define
the yardstick by which State plans should be evaluated under a na-
tional health program if we afford States the latitude to do a rea-
sonable and

Governor Chiles. I would like to submit that for the record, but I
can just tell you briefly, what we would do is we would suggest and
only suggest, because the expertise of yourself and Henry Waxman
and all of the other people that have worked in this should be used,
but what we would say as the criteria would be they should be out-
come measures that you ought to hold us responsible for, and the
outcome measures could be like, you know, what would your fraud
ratio be, what would your coverage be? j

Even if you wanted to say what would your infant mortality re- |
duction be, what would your low birth-weight rate be, give us some j
outcome measures or targets and say we will measure you, but we j
will give you the ability to determine how you ought to get there, |
because we have different areas in my State, rural and urban. |

I need to treat those in different ways, and if you mandate some-
thing that I have to do everjrthing in exactly the same way — so, the .
more flexibility, the more freedom of passing the money down, but
then make us have to enter into an agreement with Washington of I
what outcomes we will produce, and then police us by how we meet
those outcomes, and make us show you what the audit trail would
be, because there ought to be a way of auditing that, and I could
provide that better for the record in more detail. '

Mr. DiNGELL. Governor, if the committee were to suggest that we
ought to change the law with regard to waivers, to encourage the
kind of innovative thing you are trying to do with regard to the
health care plan that you have been discussing with us this morn-
ing, how would you guide us? f

How would you change that waiver law, and how would you
change other practices of the Federal Government with regard to j
Medicaid, to assist you in carrying out those purposes? j

Governor Chiles. The first and sort of simplest thing would be
where waivers have been granted before, that ought to be a blan-

] 393

I ket. States should not have to go through the same thing, if they

I have a similar situation. States should not have to renew waivers

II that have been successful in the past. That just should be a given.

I Mr. DiNGELL. That is part of it, and an important part of it.

II Governor Chiles. Yes, sir.

j Mr. DiNGELL. I concur with that.

Governor Chiles. Yes. That is the simplest thing.
I Mr. DiNGELL. Yes. That is the easiest one, right?
; Governor Chiles. Yes. That ought to be easy, but today, it is not
there.

!Mr. DiNGELL. The Secretary is going to be before us to discuss
this.
Governor Chiles. I think something like the Leahy Bill and what
is the House Bill?
[I Mr. Mangano. McDermott.

I Governor Chiles. The McDermott bill provides for 5 or 10 States
to just be given some blanket waivers in these areas, and then you
monitor them and see how they do. I think that would be a major
I step, that or simpler — something like that tacked on to whatever
passes out this year.

We think Florida would be one of those States, because — and we
would like to be one of those States. We think that would allow us
to experiment with the four areas that we are talking about. Other
States might pick a little different area. I am sure Hawaii would
jump into that, Oregon would jump into that, Arizona would jump
into that and there are some other States that would be out there.
I think you would get a lot of data very quickly.

Mr. DiNGELL. Governor, you are of the view that then your State
plan, the State Care Program you have been discussing with us,
will, in fact, be cost-benefit favorable?

Governor Chiles. Absolutely. Now, Mr. Chairman, I cannot say
that it would be that on year one; but if you want to take 5 years, I
can show you very quickly how it would be cost-beneficial, and
probably within less than that it would be cost-beneficial.

Mr. DiNGELL. Governor, would you just want to comment on how
the absence of national health care policy affects the States, both
in terms of providing health care to their citizens and also

Governor Chiles. Mr. Chairman, it is the greatest problem that
my State faces, our people face. I think it is the greatest domestic
problem that we, as a country have. It is also sapping all of our
reserves and our money for the reason that we are sort of afraid to
go into it because it is going to cost money. We are taking money
that we could use for reindustrializing this country, for re-educat-
ing this country, for retraining, for retooling. All of those dollars
are being eaten up and they are producing nothing for us because
our population is not even health in compared to the rest of the
developed nations because of the way we do it. It is the greatest
waste that is out there. It is the most single thing I think now that,
in effect, the Cold War is over, that we ought to be addressing.

You have always heard me say before the deficit is the greatest
problem, and it is; but, unless you address the health, you cannot
address the deficit.

Mr. DiNGELL. Because this is one of the entitlement programs
that is causing, in a very major way

394

Governor Chiles. Absolutely.

Mr. DiNGELL [continuing]. The deficit, which is ongoing.
Governor Chiles. Absolutely. Absolutely.

Mr. Dingell. Governor, I am going to apologize to you. I have to
leave to go to another meeting, but Dr. Rowland is going to preside.

I want to express to you my personal thanks and gratitude for
being here.

Governor Chiles. Mr. Chairman, I want to thank you and this
committee for your courtesy, but also for what I hear is a tremen-
dously pleasing sound, an encouraging sound that we can move for-
ward in a partnership with this. That is exactly what we need.

We have decided, in Florida, we cannot wait for the Federal Gov-
ernment, but we desperately need you as our partner in this.

Mr. Dingell. Well, we are going to begin doing some drafting in
the areas you have been discussing, and also see what should be
done with the regulatory relief.

I want to express my particular thanks to you and to your people
down there who have been spectacularly cooperative. If you would
keep April 3rd in mind, you and I may be out in the woods with
some very good friends doing something very well worthwhile.

Governor Chiles. Thank you, Mr. Chairman. That is a magic
date, April 3rd.

Mr. Dingell. Doctor.

Mr. Rowland [presiding]. Governor, I do not know what your
time constraints are. There are so many things I want to ask you.
There are several areas that I want

Governor Chiles. Mr. Chairman, I have about 6 minutes — they
said 5 or 6 minutes.

Mr. Rowland. Left?

Governor Chiles. Yes, sir.

Mr. Rowland. Gosh, we cannot do much in that time, can we?

Well, let me ask you, or perhaps I should address this to Rae
Grad, who is the executive director of the Commission to Prevent
Infant Mortality. There is one area that I want to cover very brief-
ly and see how you are trying to address this in Florida.

Governor Chiles. Yes, sir.

Mr. Rowland. When you left the U.S. Senate and went to Flori-
da and became Governor there, I had the distinct feeling you had
jumped from the frying pan into the fire. I am sure that you will
be able to deal with that very well.

I want to ask you a little bit about the problem with teenage
pregnancy that we have in our country, and how you may antici-
pate dealing with that? I have an article here from the Atlanta
Constitution, the day before yesterday. One of the cities in the
lower part of my State of Georgia has reported that in 1989, 22 per- |
cent of the babies born in that area were teenage mothers. Every i
hospital in the country has seen pregnancy increase among girls f
who are still too young to drive, vote or join the Army. I'

I met with a group from a clinic in my home town of Dublin, GA, j
who operate a prenatal and postpartum clinic there, and they tell ;
me that teenage and adolescents coming back for postpartum care |
are not interested in birth control — that is not what they want. {
They intend and say quite frankly, I am going to have another ,

395

baby as soon as I can. As I mentioned earlier, 40 percent of the OB
in Georgia now is under the Medicaid program.

Infant mortality is one of the problems that we have in this par-
ticular group of people. Do you have any thoughts about how you
are going to deal with this problem in the State of Florida, under
i| the proposals that you are making, or have you looked at that yet?

Governor Chiles. Part of our investment budget, and it kind of
'! fits in with this, is trying to deal with that. I have found — our ex-
I perience has been, where we have used like resource mothers, and
I brought these women in that, at the time they were going through
j their postpartum and the time they were going through their pre-
natal care, it was the best opportunity that you had to really coun-
sel with a women. I am not sure, in your clinic, whether they are
really doing any counseling,
j Resources Mothers, as you know, are taking somebody that suc-
j cessfully raised their kids, they are not a nurse, but they are trying
I to tell these young girls how they can have a life of their own if
I they stay in school, how they can slow up that next pregnancy, and
I what the reasons are and why the reasons should be there.

I continue to hear the myth that these women want to have
these babies because they get more money. That is not true in my
State. Hell, we pay just $20 over the minimum in AFDC, so they
are not getting more money. They — and, basically, what we found
is where they are given the right kind of counseling, we have seen
some amazing successes in the return rate of pregnancy. Normally
you could say a 13 year-old having a child is going to have three by
the time they are 18.

We have been able to show, in a number of areas, where you can
reduce that at least 50 percent and sometimes higher. Now, the
other strategy that I think works better than anything I have seen
in my State, is school-based health clinics that give family plan-
ning information.

We are encouraging that, and that is another phase of our in-
vestment budget, is to open a number more. We asked some coun-
ties to, you know, provide — see whether they wanted to, and they
fought themselves to sort of get in for the few that we provided for.
We are providing for more.

It will be up to parents to decide what kind of information that
you give them. We have the Quincy Clinic, the school-based health
clinic that was at a high school in Quincy FL., reduce teen preg-
nancy by 75 percent in the first year. That is our standard or what
we use. That is a very very successful device.

I think — you know, what you are seeing is sexually active teen-
agers. Trying to say you are not going to provide information and
family planning devices or what not is just kind of crazy.

We are finding, again, in our postpartum services, that many of
these women are asking for Norplant. We are trying to get the
funds to be able to provide it, which gives us a 5-year leeway —
where, again, they requested it, it is something they are seeking.

Mr. Rowland. One other question that I want to ask in a differ-
ent area that I am very much concerned about, is the spread of
AIDS, and how that is going to impact adversely, severely on our
health care delivery system. It certainly is going to cause a great
deal of problems in any plan that is put into place, insofar as fund-

396

ing is concerned. Have you given much thought about the AIDS
problem and the increase in opportunistic diseases such as tubercu-
losis?

Governor Chiles. Well, again, it goes a lot with trying to get the
information out there. Certainly, what we are seeking of trying to
be able to treat the cases you have in the most economical way,
makes sense.

Mr. Chairman, I do not want to say that we have got an answer
to it, because we do not. In Florida, we are fourth in population
and, I think, third in the number of AIDS cases, so it is a major
problem for our State.

Mr. Rowland. Thank you very much.

Mr. Bilirakis, do you have any additional comments?

Mr. Bilirakis. No thanks.

Mr. Rowland. Governor, thank you so very much.

Governor Chiles. Thank you, Mr. Chairman. I do have the oppor-
tunity to just speak for a minute about the Infant Mortality Com-
mission Report, which Rae Grad is going to testify in great detail. I
cannot think of a better way to illustrate why we have to succeed
in our reform plans in Florida, than to talk about this report. Trou-
bling trends persist.

Two years ago to the day, the commission released the first
report on troubling trends, in which we tried to sound that loud
and clear warning. Today, we see that a lot of people did not hear
our warning. Not only is our Nation's progress slow in the number
of areas, we are actually going reverse in some. This cannot contin-
ue, if we are going to have healthy families, children that are able
to learn, a productive workforce for the next century. It is just too
costly, in terms of money, human suffering and potential.

I am proud to report to you that we have heard the message in
Florida, and we have responded with our Healthy Start Program.
In our first year, the major aim was guaranteeing that all women
have readily access to adequate prenatal care and their infants re-
ceive the health care they need. This is front-end, cost-effective pre-
vention.

We are proud that Healthy Start and our Florida Health Plan is
going to give us the ability to go through with that to speed that
up. We, again, just say that getting the ability to cut some of the
Federal red tape would be tremendously helpful.

I, again, congratulate you on all of your service in the Infant
Mortality Commission and certainly Rae Grad and all of the people
that we have who work so hard there.

Mr. Rowland. Thank you very much for being here today. Gov-
ernor.

The next panel is Ms. Rae Grad, Executive Director of the Na-
tional Commission to Prevent Infant Mortality. She is accompanied
by Mary Carpenter, who is a registered nurse also, and is Deputy
Director.

I thank both of you for being here this morning.

Rae, you and Mary have heard that testimony in this committee
is under oath. Do either one of you object to testifying under oath?
Do either one of you desire counsel? There is a copy of the rules of
the committee and the subcommittee in front of you, if you, at any
time, feel you need to refer to those, they are there.

397

So, I would ask you to both rise, if you will, and raise your right
hand.
[Witnesses sworn.]

Mr. Rowland. You may now consider yourself under oath. Let
I me welcome both of you here. I have been so pleased, over the past
' several years, to have the opportunity to work with you. You have

both done a wonderful job in trying to deal with this problem of

infant mortality.

So, you may give us your opening statement in any way you
choose.

TESTIMONY OF RAE K. GRAD, EXECUTIVE DIRECTOR, NATIONAL
COMMISSION TO PREVENT INFANT MORTALITY, ACCOMPA-
NIED BY MARY BRECHT CARPENTER, DEPUTY DIRECTOR

Ms. Grab. Yes. Thank you Congressman Rowland and the com-
mittee.

I have prepared many hearings and helped witnesses and read
I many testimonies myself, and what I would like to do is submit my
formal testimony for the record, and spend my time with you just
talking from my heart.

Mr. Rowland. Without objection.

Ms. Grad. And from some of my experience.

As you know, I am here with Mary Carpenter, my deputy direc-
tor, and we will answer any question afterward, if you would
choose to ask them.

We are here to release the report which Governor Chiles talked
about, ''Troubling Trends Persist, Shortchanging America's Next
Generation."

The first report we did on Troubling Trends was 2 years ago, it
had some very dismal statistics. I was hoping that 2 years after
that report we would have a red, white and blue report saying that
I could retire and open a restaurant and do something else with
my time. It did not work that way. I am troubled that we have to
submit a second Troubling Trends report.

What I would like to do. Congressman Rowland, is to be put out
of a job. I know that sounds strange, because I really enjoy my
work. I do not get it. I do not get why I have to write a second
report like this, I do not get why I have to testify in front of you, I
do not get why Mary and I have to work 12 and 15 hour days and
most weekends. It should not be this hard. This is children we are
talking about, this is babies we are talking about, this is the next
generation we are talking about.

So, why is it so hard? Why, when I go to parties and people say,
Rae, you have the best job in the world, motherhood and apple pie,
it must be so easy. I say, I am tearing my hair out on a daily basis.
It is not easy. In a sense, I know I am testifying in front of you, but
my question goes back, why does this problem have to remain? It is
very troubling to me.

We have some statistics over here that show, yes, invent mortali-
ty, overall, is coming down, it is now at 9.8 deaths per 1,000 live
births, which is the lowest it has ever been. Well, on the one hand,
I am ecstatic, this is great news. On the other hand, I cry every
night, because the way we got to this point is not that we are pre-

398

venting low birth weight babies from being born and not because
we are doing a better job in prevention; all we are doing is invent-
ing better tubes and whistles and pumps and technology, and we
are saving low birth weight babies.

If you look at a concomitant statistic which is in Troubling
Trends, which is how many babies are born low birth weight, this
is the highest it has been since 1984-1978. The highest it has been.
Well, this is crazy. We should not have to have this problem.

This is not a partisan issue. I have worked on this

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Full text of "Medicaid program investigation : hearings before the Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce, House of Representatives, One Hundred Second Congress, first-[second] session"

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